Are tiered/protracted bonuses the answer for banks trying to combat unprofitable customers?

I was thinking about this the other day, since I received an offer for the Korean Air Visa that awarded 15,000 points for every $1000 spent in the first three months, up to 45,000 points. I feel like we’re seeing more and more cards offer tiered bonuses as a way to induce people to spend on the card, rather than sock-drawering it as soon as they hit the minimum. I can think of a bunch off the top of my head, but what motivated me to write this post was a targeted offer I received from Citi today to apply for the AAdvantage Platinum card. (The fact that I opened this card a few weeks ago hasn’t propagated through Citi’s systems yet, I guess). The bonus on the offer is 40,000 miles after $3000, and then an additional 10,000 after spending an additional $2000 over the first year. Others that come to mind: Chase’s Marriott Visa offer where you earn 5 points per dollar up to 150,000, Amex’s Blue for Business giving double points for the first year, and the recently-ended 100,000 point Business Platinum bonus that gave 50,000 points after $5000 and another 50,000 after $10,000 more. Amex has also offered 10 points per dollar up to 100,000 on the personal Platinum and tiered bonuses up to 250,000 on the Business.

Interestingly, Citi used to do this on the Premier card – I think it was 20,000 points after $X in the first year, and 30,000 more after paying the annual fee in year two. I can’t remember if there was a min spend the second year or not. However, Citi got rid of this when they revamped the ThankYou card lineup and changed the bonus to 50,000 points after $3000 (same as the Prestige, which is how I got 100,000 Citi points in the space of a couple months). They have since dropped that bonus down to 30,000, but I think it’s interesting that they scrapped the tiered bonus altogether, since it was obviously cutting into new customer acquisition. That seems to be the outlier, though, since the trend definitely seems to be cards that encourage you to spend over a longer period of time than just the first three months.

Honestly, this makes more sense to me than other strategies to keep churners away. While churners aren’t profitable customers most of the time, they’re extremely profitable customers when it suits them. Of course, the holy grail for a bank is someone who carries a balance and neither pays it off nor defaults, and most churners don’t do that. However, churners funnel as much as humanly possible onto their credit cards, so if a card can be top-of-wallet for these folks, there’s a lot of interchange revenue to be had. Not to mention, churners are much more likely to pay high annual fees.

I don’t work in the financial industry, so I don’t really know what I’m talking about. However, Chase’s 5/24 rule has never made sense to me. If you don’t give a churner a bonus, they’re probably not going to apply for a card unless they want it for everyday spending. In that case, why deny it to them? It would make sense to do what Amex did and only offer one bonus per lifetime, or even increase the 24-month threshold to 36 or 48 months. What 5/24 says to me is that Chase doesn’t want people who open lots of cards, because those people are savvy enough to know how to milk each card for every last drop of value, and Chase doesn’t want those people doing that with Ultimate Rewards (or United, Marriott, etc… Hyatt and IHG, sure fine go ahead, no one cares about those). If that’s the case, it presents an interesting scenario in which Chase’s rewards program has become too lucrative, and so they have to try to prevent people from taking full advantage of it.

Gary Leff has written extensively about interchange fees trending downward, and I’m wondering if 5/24 is Chase’s admission that interchange fees are no longer high enough to cover the cost of providing Ultimate Rewards (assuming a high percentage of program members know how to maximize its value). When Amex talks about surgically removing churners (sorry, “gamers”), maybe this is what they’re talking about… not opening multiple cards in a year or manufactured spending, but simply people who know how to maximize Membership Rewards. It will be really interesting to see how surgical they can get. As I joked on Twitter, if they really had that level of surgical precision, they wouldn’t have targeted my wife for a 50,000 point bonus on the Premier Rewards Gold (with no once-per-lifetime restriction) less than a year after she closed a PRG for which she was targeted with a 50,000 point bonus. In around 26 months, she will have earned 100,000 points and $400 in airline credits while paying $0 in annual fees. While that’s probably an outlier, my hope is that “surgical precision” is something fancy to say on investor day and not actually a reflection of how good Amex is going to be at rooting “gamers” out.

To sum it up, my hope is that more banks use positive reinforcement to cut down on people abusing sign-up bonuses by offering tiered bonuses and incentives to use the card long-term. This would obviously be preferable to shutdowns and one-size-fits-all restrictions like 5/24 or Citi’s new once-per-family restrictions. The next couple years will be pretty interest, though. Yet another reason I’m trying to get as much as I can right now, since I don’t know how much longer the buffet is going to stay open.


  1. EweJay says:

    I’ve always thought it was smart how Blue FCU and CCU devised it where you are rewarded with a higher interest rate the more you are engaged as a customer (loans/products or credit card spend).
    I’m all about cash back though. Not sure how that could work with miles/points.


  2. Al says:

    While I can’t claim to understand the deep economics of rewards/bonuses for banks, I agree that tiered bonuses always seemed like a less convoluted (5/24) or just straight dickish (Amex 1x/lifetime) way of dealing with churners (save for hardcore MSers, for whom high min spends don’t pose an issue). And, honestly, as long as the tiering is still slanted toward awarding the majority of the bonus for something more attainable (i.e., Chase BA card w/ 50K Avios for $3K spend, then another set of 25Ks for $10K and $20K spends), I don’t mind. If you’re either a high roller or a seasoned MSer, you can get your big-time bonuses. For the rest of us commoners, we can still get our slice of the pie.

    I mean, don’t get me wrong, this comes from the perspective of someone otherwise trying their damndest to game the system, so anything that cracks the door open on more bonuses is gonna be my preference. The reality is that 5/24, Citi 1x/24, Amex’s 1x/lifetime, etc. are fairly effective at weeding out the gamers. There’s exceptions to that (a la Amex’s inexplicable desire to shower your wife with endless bonus-laden PRGs), but it’s generally true. A question I’ve been pondering lately is whether there might be any change in the next few years that might make either Chase or Amex (as, frankly, they feel like the biggest players in the game) re-think their current restrictions. Can you imagine the volume of shit the churning community would lose if, say, two years from now Chase suddenly said, “5/24 was a bad idea. C’mon back, old friends!” I’d say it’s nuts, but the reports about CPCs getting special treatment or Business Relationship Managers getting biz cards approved for those well over 5/24 make you wonder if Chase knows there’s a limit to, well, the limits.


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