From another thread I found an American Express credit card wihich gives a 5% rebate on certain purchases; office supplies and gas, IIRC. How can they do this and make a profitt?
One obvious answer is that it’s just a loss leader. They may lose $100 on my office supplies and make thousands on interest payments and other fees. But is there something else I’m missing?
And what if I just use this card for gas and office supplies? Will this get them angry and will they get rid of me?
They are making lots of money on other things, including:[ul]
[li]Merchant fees every time you make a purchase[/li][li]Annual fees[/li][li]Interest on your card balance (assuming you don’t pay the full balance each month by the due date)[/li][/ul] Don’t worry, they are not in business for their health.
I’d give you a 5% rebate if you want to buy office supplies from me.
They give you a card with an interest rate of 15%. They offer you 5% cashback.
That equates to a card with an interest rate of 10%.
There are a largish number of assumptions in that statement.
That assumes that someone lets the balance revolve and actually pays 15% interest on it. Many of us pay off the balance every month and never pay any interest. Besides, classic American Express cards are charge cards and not credit cards. You are expected to pay the balanace ever month.
They figure you’ll use the same card for other stuff that doesn’t have the 5% rebate. Other companies do the same thing with a higher discount for “everyday purchases”. If you use the Chase Visa for gas and groceries, you’ll always carry it, and you’re more likely to use it to buy a flat-screen TV.
Assuming this is America Express Blue Cash, there is no annual fee.
The rebates are:
Even if you don’t accumulate any fees or interest, the merchant pays - current merchant rates average about 2.5% for AMEX, vs 2% or less for Visa/MC.
It’s not a huge difference in the price of a box of copy paper, but (just to pick someone handy) Office Depot has annual sales of around $315 million. Let’s assume three-quarters of their sales volume is paid by plastic (you can’t pay be check or cash online, for starters) - they’ll be paying nearly ten million a year in merchant fees. Not exactly chump change.
Also, most AMEX cards have annual fees - the classic green card will cost you $95 a year, on up to the fabled “Black Card” - the Centurion, which costs $5,000 to get and $2500 per year to keep.
It all adds up to the point that giving a 5% rebate on office supplies is a pittance.
But not the one that gives the 5% discount - see my post immediately before yours.
In the Glory Days of Credit Cards, there used to be several 5% cashback cards which offered 5% on all gas, grocery store, and drugstore purchases, with no annual fee, and no minimum $ amount of purchases like the Amex Blue (which only gives you 5% after you have spent $6500 at 1% cashback). Chief among them was the Citi Dividend Platinum Select, of which I am a happy owner.
Recently (less than a year ago) these cards revoked their 5% offers, because they were simply losing too much money on them. However, at least some people (including me) who had the deal before they stopped offering it seem to have been grandfathered in. 
Yes, I’m very happy.
Yes, but the many of us that pay off the balance every month are well out numbered by the many of them that don’t.
Was that a made-up number? Because their last reported quarterly retail sales was $1.8 billion.
Emphasis mine. Well, there you go. It also would appear to be some type of co-marketing, or a promise to non-superstores that the credit card company will try to drive traffic their way, in exchange for traditional credit card commissions. The superstores (Wal-Mart in particular) are always bargaining these things way the heck down, so if you shop at a non-superstore, they get their higher commissions.
Recently Sam’s Club started accepting Mastercard. It’s nice not having to get cash just to shop at Sam’s (or use my unused Discover and forget I have a balance on it). Since I’ve starting using my Mastercard, though, I’m not constantly spammed by Sam’s club every time I’m there, and more recently in the mail, to get their Sam’s Discover. How do they spam me there? The pre-approved offer comes right out on the receipt, and it especially worries me that I can use it then and there at that very moment at up to a fairly high amount. The point being, credit card commissions are important.
Oh my, that was their 1989 sales figures from a cached page… :smack:
Your figures are a bit short as well. They’re claiming annual sales of over $15 billion.
Multiply what I said earlier by err, ahhh, carry the eleven… they’re probably paying about $450 million per year in merchant fees.
The APR rate is a annual rate, not monthly, so that 15% rate is about 1.2% per month, while the rebate is 5% per month, so they loose 3.8% per month.
But…
I think a lot of the 5% back were to change consumer habits. The CC company want us to use the CC for every transaction, even if it’s a $0.79 candy bar at the local gas station/drug store or supermarket - and yes I do use my CC for those things and yes I do get 5% back.
A rebate would be a one time discount, not a going 5% (or whatever) per month.
Yes, but the monthly rate is about 1.2 - 1.5%, far less then the rebate.
True, but after 3 months, they are almost caught up. At four months they are dead even or slightly ahead. After a year they are way ahead. Tack on the percent they lay off to the business, plus any sharing of this rebate with the company that sees additional business, and I’m sure that they are doing just fine.
This is a nice way of AmEx to get you to use their card on day-to-day items instead of using VISA or MC. Traditionally people use AmEx for travel expenses and VISA/MC small, sundry spending. They obviously want to change that mindset.
:eek:
Not that I disagree with your numbers, but if I’m the type of person to pay 5 grand for a credit card, I’m unlikely to also be the type of person purchasing office supplies. :dubious: