posted on November 24, 2008 10:35:40 AM new
Before you pull out that Rewards/Frequent Flyer Credit or Debit Card again, you should understand exactly how you earn those freebies.
This isn't some great bank or airline promotion that they offer you on their behalf.
THE MERCHANT PAYS UP TO 8 TIMES WHAT YOUR MILES ARE WORTH!!!
When you pull out your reward card and use it as a credit card, you are punishing the merchant that you are using the card at.
If you are a merchant, you see this in a tiered processing fee format. A regular credit or debit card may be charged 1.65%, but then doubles, sometimes even triples when a Reward Card is presented.
What that means to the buyer is little, except they don't know the truth about who pays for those rewards you get.
If you buy $1000 at a mom and pop store, Mom and Pop pay $16.50 to process a regular credit or swiped debit card. If it's a reward card, double that to $33.00 or even triple to $49.50. Imagine if someone took $16.50 or $33.00 out of your wallet each time someone used a reward card!
What does that $16.50 buy the consumer on a $1000 purchase? If your reward is 1 point per dollar, it costs merchants $1515 for you to rack up 25,000 points (the minimum for a restricted coach class plane ticket). If you want to fly without restrictions (50,000 miles), you are looking at $3030 for a coach ticket. This is what the merchants pay for you to fly.
If you get 2 miles per dollar, then you're ticket costs $767.50 for that plane ticket. This of course doesn't include the annual fee you are charged, or any additional fees you are charged by your bank to get your plane ticket. Wells Fargo charged our business $25 a year for the cards, plus $50 per plane ticket to redeem them.
How much do the airlines charge the banks for those redeemed frequent flyer miles??? Probably about $100-200 per ticket.
This is one of the biggest scams, and should be stopped, or regulated so that the banks and airline companies are paying the fees... not the merchants.
Most merchants are not aware that this happens. I found out last year at a gas station, when the owner got upset at me for requesting he swipe it as Credit, even though it was our Business Debit Card. I told him that I got reward miles, and then he told me this. When I called my processor, they confirmed it.
Please educate as many people as you can about this scam. If you use a rewards card, think about using it only at bigger merchants that pay significantly smaller processing fees than small businesses. Larger corporations like your local Target, Wal Mart, or grocery stores are generally not located in your town, so all of the profits leave your area anyways. Add that to how much the bank gets on the reward scam, and in essense you are really punishing your local economy.
[ edited by shagmidmod on Nov 24, 2008 10:45 AM ]
posted on November 24, 2008 08:05:20 PM new
Credit cards, when all is said and done, are for chumps. This is yet another way the chumps get fleeced. These robbers will get you coming and then they'll do it again going, and most people are more than happy to allow themselves to be taken by these vermin.
