It’s an interesting thought exercise and window into the business models of the big banks, that some companies at different times in their evolution have given signup bonuses to customers that have had their cards in the past.
It seems especially strange and impossible to people that are signing up for cards just to get the bonuses. I mean, after all, why would banks do that?
But there’s both a positive business case for how banks behave and an interesting sociology there.
I remember getting a US Airways credit card around 1997 that came with a small signup bonus. When the first month’s bill came, I decided I didn’t want an annual fee credit card so I cancelled it and they removed the fee. The miles stuck. Several months later I changed my mind, realizing that I was now spending enough to warrant earning something in return that was worth more than the fee. So I applied again and was surprised to get the bonus again. I realized something interesting was going on there…
And really I think it’s three things.
Good business. For the big banks, and programs with large memberships, it’s entirely possible to have a cardmember sign up for a card and for whatever reason decide it no longer matches their needs.
So they close the account. Sometime in the future they’re contemplating coming back, and the bank decides it’s in their interest to award the bonus again.
After all, the person who has had the card in the past is potentially just as good a new customer as someone who hasn’t been with them before. What’s more, if they deny that person the bonus they are going to be disappointing a potential customer.
Indeed, someone who was inclined to sign up for a card before is precisely the kind of person a bank wants to market to since they’ve always shown a willingness to respond to their offer. That consumer’s changed circumstances could make them a longer term customer this time.
So why foreclose that possibility, or sign up a customer and then tell them they’re not valuable or welcome right after you’ve brought them on board?
Of course the incentive of the bank as a whole isn’t to reward behavior that takes signup bonuses and runs by giving out more signup bonuses, encouraging and rewarding behavior that’s not profitable to the bank.
But it’s a mistake to look at a bank’s — or any large institution’s — incentives as monolithic. There can be bad incentives inside the bank. The people who want to sign up consumers may be rewarded simply for doing so, rather than for the long-term profitability of those consumers. In other words, different people inside the bank may want different things because of how their compensation works. And at different times different factions may prevail — because of their individual incentives, or because their point of view on what’s the best business decision may change.
Remember that it’s ‘back to the future’ with American Express, which when I first started in miles and points and through the first half of the last decade used to allow consumers to get a card bonus only one time (although if the consumer signed up for a better offer than they had originally received, they could have the incremental difference in bonus). They became more generous and more aggressive in acquisitions for awhile. And now are trying to clamp down again by giving out a bonus on a card product only one time regardless of how long it’s been since a consumer had been with them.
At the same time, while we can analytically separate out consumers who were once customers and want to come back and be treated well from consumers who are just out in search of a bonus, there are varying degrees of competence on the part of different banks in managing their programs, in managing their analytics, and in setting up processes to properly track who they want to offer a bonus to and who they don’t.
These varying degrees of competence imply varying levels of cost to roll out such a solution. And the level of cost that’s justified for a bank depends in part on just how many people are out in search of serial bonuses. The more people doing so, the higher the cost, the greater warranted the investment may become — regardless of the competence and ability to act at a low cost on the part of a given bank.
The upshot of this model:
- This simple model offers an explanation of why less competent banks, with fewer or more obscure card products, may tend to make their bonuses available time and again.
- And it also offers an explanation for why policies shift (changing business needs and shifts in internal power within the bank) and why over time banks as a whole become more wary of consumers getting bonuses multiple times (reducing systems and technology cost).
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Gary, but what about those CC that you can have more than one at a single time (Alaska comes to mind…….)?
The reason is that the banks have to loan money. Period. If they don’t, they go out of business because of no CC use (which is the vital blood stream of the Internet itself). The bonuses have spend limits, and the amount of credit is also limited. The question should be: Why don’t the banks have a spend of $1.00 for 1 Million FF Miles, and then have a credit limit of $2 Million USD? Same analogy: What’s the difference to have a capped $15 Minimum wage rather than making it $200/hour?
With the example given above based on the credit (not the min wage), everyone would fly, everyone would spend, love life. But the banks don’t — they know that a spend of $3000 (for example) for 50K FF Miles and a credit limit of about $10,000 based on a machine deciding a “computerized credit score of the poor” is to keep the ability to think of a greater income away. Multiply that with the number of the poor “paying off the bank for ever” on the number of “loans” given by credit cards, and the banks don’t care what the amount of FF Miles are. If the banks gave a damn, it would be 1 Million FF Miles with a spend of $1.00
And this is especially moment where the credit cards financially facilitate the counterfeiting of goods and services on piratical websites so that they can enforce a spend of $3000+, etc. An unfair competition of international laundering by the same institutions.
Thanks. ED
Because of Amex’s policy, I am now disinclined to apply for ANY Amex product. I don’t remember what Amex products I had in the distant past, and I don’t want to take a chance that I’ll miss out on a bonus. And I’ve been burned by Amex in the past, where on signup or activation, they promised I was eligible for a bonus, but later, upon meeting the terms, claimed I was disqualified.
I imagine Amex will miss out on the very customers they are seeking: prior customers with good credit histories, who as they get older will be spending more on their cards, either for personal or business spend. So that spend will now be going to their competitors, and they will lose market share.
PLEASE tell me WHICH Cards I can reapply for—and get the Bonus AGAIN?
I was thinking to cancel a few Chase + Citicards—if I could reapply and get the Sign-Up Bonus AGAIN.
How long do I have to wait to reapply??
Waiting for your kind reply!
Great article, but what are the banks that let you reapply and give the bonuses?
I want to add on to what @Kim asked. I noticed you’ve written a post on how applying for credit cards affects your credit (which I read with great interest and found very helpful), but I haven’t found any posts discussing how *canceling* cards can affect your credit, when and how is best, etc. This seems especially prudent given the topic of this post, since presumably you must cancel a card before you can sign up for it again.
Cancelling cards can reduce your total available credit, and thus increase how much of your total credit you use in a month. That’s not good for your credit (utilization ratio). But if you have plenty of unused available credit this may not be an issue for you.
Cancelling cards does not hurt the average age of your accounts, at least for quite some time, as a card remains on your credit report even after it is cancelled (usually for 7 years when it ages off).
The banks know what they’re doing and are not oblivious to the fact that people sign up for more than one bonus. The average Joe probably doesn’t sign up for multiple bonuses like all of us so they are not really losing money by allowing it. I’m sure the banks know how much they earn in fees on average versus how much the sign up bonus costs them and they build it all into their model. Some banks just choose to do it different than the competition.
Friday’s WSJ (6.27.14) had a front page article about banks giving credit cards to “sub-prime” applicants. The higher quality customers are all taken. The credit card market at the high end is saturated. So, people with credit scores below 700 are being accepted. Which says to me, that banks will go thru this cycle again. And banks will probably allow the better customers to earn repeat bonuses again. Give it time, and history will repeat itself.
I agree with JohnB. New AMEX policy is unsustainable (if they actually decide to enforce it) especially during their ongoing battle with Chase for travel card market. And there is a good reason Chase “forgets” you after a while, too.
As to banks that consistently give you a sign up bonus for most of their products, BoA is the first to come to mind.
gary- can you make a posting of which cards are churnable and how long the waiting time is? thx.
@JohnB I don’t think there’s any such thing as the ‘high quality customers are all taken’ because their business can be shifted.
Yes, please, which cards are churnable and how long the waiting time is? Great idea!
I had a conversation with a friend about this, so this is my take.
1. Simplicity.
As you said, it’s more complex for banks to keep track of who’ve applied before etc, and the cost of maintaining such database (and coding your system to recognize it) may not be worth the effort.
Similarly, this is why there are still bonuses without minimum spend. It’s easier to code the system that just gives you the bonus without having to keep track of your spend so far. EVEN if you think it’s not that hard to do, the more complex the IT system is, the more they have to hire programmers, do adequate testing, approval process, etc, and that’s just more money and time lost in the logistics.
2. Target demographics.
Yes they may lose money from serial churners like us, but they make their money first and foremost from people who get enticed by bonuses and then carry a balance on the card. They’ve presumably done enough market research to know that the percentage of the churners are small enough.
This actually makes perfect business sense. Suppose I own a store and I sell an item for $100, and I know that every day I can sell about 10 items. But if I lower my price to $90, I can sell about 20 items. It might be worth it to lower the price then, depending on how much the item costs me to begin with. Yes I “lose” money from each customers who would have bought it at $100 anyway, but I make more money in aggregate. What’s more, if this is a product that “must go” (i.e. have inventory carrying cost) then there’s even more argument to lower the price. The principle I’m outlining here is that just because the banks lose money from YOU, doesn’t mean the banks lose money period. They have a very sophisticated and detailed demand curve from extensive market research, so they chose that amount of bonus miles and that amount of minimum spending intentionally.
3. Short term numbers.
I don’t have enough data to back this up, but maybe they need to get a lot of signups short term just to boost their numbers in time for quarterly report. Maybe if there’s a study that compares bonuses and their timings versus earnings report we can prove or disprove this theory.
Sorry Gary, but as someone who watches the industry closely, I think Ed (above) has a better explanation.
The idea of issuing multiple cards to an individual, instead of one card with a big credit limit, is not new. It is done to increase the chances of earning fees.
Think of the bank’s cost/benefit analysis: the cost of closing the loophole is foregoing those fees, and the significant expense of rewriting the backend computer software. The benefit of closing the loophole is of course a huge savings in sign up bonuses. How huge? We don’t know because we don’t know what Citi pays for those AA miles.
Citi has calculated it is worth the price of honey to attract more flies.
The thing I really disagree with is the commenters who claim AmEx’s knew policy is unsustainable. No. AmEx’s original policy was “once in a lifetime,” then they loosened it. So now AmEx has years of data from allowing the scammers to grab the sign up bonuses over and over. Now that they tried it both ways, they have the data to prove that it is better business to cut off the scammers after one sign up bonus. Simple spreadsheet analysis I think.
Oops. Meant “new” not “knew.” My momma the teacher would smack me!
And just what are those banks that give Signup Bonuses Over and Over for the Same Card?