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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