Who "pays" for premiums/cash back? Bank, Promoted Co, or both?

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MagnoliaBlossom
 
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Who "pays" for premiums/cash back? Bank, Promoted Co, or both?

Postby MagnoliaBlossom » Mon Sep 27, 2010 8:27 pm

I hope I can make my question understandable.

When a credit card offers a premium, who pays for that? The bank, offering co. or both?

i.e.
Norwegian Cruise Lines Mastercard WAS with MBNA and offered 3% on all purchases, 4% on NCL purchases. With enough points you could get a $500 gift certificate for cruises on NCL.

Then (big sigh) Bank of America took over the program and it became 1%, so you obviously need a boat load more points for the same $500. They threw in a few other little niceties but nothing that compared to that 3%.

My question is - was the cost savings measure (fewer certificates issued) benefitting BoA or NCL or both?

Thanks in advance.
MB


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Mogul of Pineapples
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Postby Mogul of Pineapples » Thu Sep 30, 2010 9:30 pm

It was probably benefiting both.

Since the 3% was only redeemable for credit on Norwegian Cruise, it's not like it was truly costing 3 cents per dollar, whomever shouldered the weight of it. Bank of America are total cheapskates with their rewards so when MBNA was bought out by B of A they probably changed up the program to make it more profitable.

Does the card still give 4% on NCL purchases?
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Postby Generallisimo » Sun Oct 03, 2010 5:42 am

Those businesses (flowers, travel, etc.) are all commission based. So because the bank or credit card brought in business through its website, the company you are buying from will pay a commission to the bank, which then passes on some of that to you through the discount or extra rewards.

I am 150% sure that FTD.com's business is solely based on this. As in, it makes all of its sales through banks and credit cards (Amex, Visa, Mastercard all give a 10+% discount at FTD) where they offer a seemingly good deal, but the rates are jacked up anyway (before adding a $10 service charge). Even after the discount they usually cost more than a local flower shop. This is something car dealers and grocery stores do as well and it's a shame because it works so well because most people don't actually attempt to do the math, they just go "Oh, I'm saving X, nice, I will gladly buy it!"

Oh yah, so in response to your question, the discount is probably being paid for by the company and not the bank at all. The bank makes money by keeping a portion of the commission and whatever interest they can gouge out of you. I believe this because it would explain why Apple (a stingy company when it comes to discounts) only offers a 2% discount through all the banks/credit cards shop websites, whereas companies like FTD and the cruise-lines offer seemingly super-awesome deals of 10+%, when in reality it is actually most harder to put on prices on the goods they provide and therefore, they probably have a much higher profit margin than Apple's (before the discount, after it is probably comparable).

MagnoliaBlossom wrote:I hope I can make my question understandable.

When a credit card offers a premium, who pays for that? The bank, offering co. or both?

i.e.
Norwegian Cruise Lines Mastercard WAS with MBNA and offered 3% on all purchases, 4% on NCL purchases. With enough points you could get a $500 gift certificate for cruises on NCL.

Then (big sigh) Bank of America took over the program and it became 1%, so you obviously need a boat load more points for the same $500. They threw in a few other little niceties but nothing that compared to that 3%.

My question is - was the cost savings measure (fewer certificates issued) benefitting BoA or NCL or both?

Thanks in advance.
MB
Last edited by Generallisimo on Sun Oct 03, 2010 5:48 am, edited 2 times in total.

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Mogul of Pineapples
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Postby Mogul of Pineapples » Tue Oct 05, 2010 4:53 pm

I believe this because it would explain why Apple (a stingy company when it comes to discounts) only offers a 2% discount through all the banks/credit cards shop websites


On ShopDiscover Apple is a higher 5% and that surprised me being how stingy of a company Apple is.
Disclosure: I am a moderator/paid staff of this site, which does have advertising relationships with some credit cards that are discussed and linked to. Regardless, anything I say is my honest opinion.

Current Cards:
American Express: Blue Cash, Simply Cash Bank of America: WorldPoints Platinum Plus Chase: Amazon, British Airways, Cash Plus Rewards, Freedom, Ink Cash Citi: Thank You Premier, Dividend Platinum Select Discover: More
Primary Everyday Card: American Express Blue Cash
Primary Travel Card: Chase Sapphire Preferred

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Postby Cucumber » Thu Oct 07, 2010 2:38 am

Ordering flowers though those online services like FTD are a total scam. They mark it up so much its not even funny.
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Postby MagnoliaBlossom » Mon Oct 11, 2010 7:41 pm

Thanks for the answers, guys.

No, NCL does not still give 4%, it gives double points (2%).
Now you get 1% back and can get an OBC, a discount certificate for your cruise
(50,000 points = $500) or a cash transfer to your bank.

BoA's program was $17,500 in purchases got you a $500 gift certificate for use on NCL - no strings attached (dates, itineraries, etc). The screwy logic in their new program is that with the cash back being the same rate as NCL related discounts, allows you to spend your cash back on anything you want - even their competitors cruises!

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Postby fffresh » Thu Oct 14, 2010 3:57 pm

Many programs have similar illogical reward schemes. The Chase card which I use will issue various gift cards for $50 or a $50 check. I see no reason to opt for a gift card that restricts to your options to only one.

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Postby Mogul of Pineapples » Wed Oct 20, 2010 8:37 pm

BofA has been severing ties with a lot of partner cards. It almost sounds as if they are deliberately giving a bad deal on the Norwegian Cruise Lines card in hopes that NCL goes with a different bank next time.

Have you seen the Discover Escape card? It gives 2% on all purchases that can be used for travel.
Disclosure: I am a moderator/paid staff of this site, which does have advertising relationships with some credit cards that are discussed and linked to. Regardless, anything I say is my honest opinion.

Current Cards:
American Express: Blue Cash, Simply Cash Bank of America: WorldPoints Platinum Plus Chase: Amazon, British Airways, Cash Plus Rewards, Freedom, Ink Cash Citi: Thank You Premier, Dividend Platinum Select Discover: More
Primary Everyday Card: American Express Blue Cash
Primary Travel Card: Chase Sapphire Preferred



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