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I feel like you need to do a lot more research into this.

There's a reason that the highest value cards don't generally offer more than around ~2.3%. You do not receive 2.9% on every transaction, and you need some of that margin to cover your expenses.

It seems like your business model is somehow trying to market your customers to transfer partners in exchange for better rewards, but that's just not how it works. The merchants are generally the ones in the driver's seat. As the article points out, they have relationships with customers and they're the ones actually offering compelling high-end rewards. All you are is a random other issuer—you have to compete to get them, not the other way around. (AmEx just lost that competition to Citi.)

If you're targeting higher end purchases, the 30 cents is meaningless.

I expect there's a reason that Amex's high-end credit cards are light on rewards and heavy on benefits: people in those income brackets don't really care about getting an extra percent back on their credit card bill.

I doubt it's because they don't care, more like the cost of a concierge service/personal shopper, free airline tickets, etc all end up being MORE than 1% of their credit care bill. And they are probably buying those things either way.

The 2.9% + 30cents on every transaction

There's the flaw in this idea.

The merchant's bank collects 2.9% + 30 cents (in this example). A portion of this is transferred to the issuing bank.

The amount transferred is called the Interchange Fee, and it is significantly lower than that amount. There are different fees depending on the card type, credit/debit, rewards, business cards, etc.. and they are set by Visa/MasterCard/etc. Discover and Amex have more latitude here, since they are both the issuing and acquiring bank... but if they raise fees too high, merchants will just stop accepting their cards.

Interest from the card balance is kept by the issuing bank.

So you see, revenue from credit cards is divided between multiple parties...

Precisely. From my experience (in developing countries where the interest is very high) the banks makes much more money from the defaulting. The exchange merely pays the costs.

This is a deep misunderstanding of interchange - you don't get anywhere close to 2.9% + $0.30 a transaction. First of all, only the online processors even charge that, in person it's usually 1.9% ish. Second of all, a cut goes to a bunch of people in the chain.

The money for rewards comes from interest on debt. Capital One made ~10x more on debt than interchange for instance.

Many years ago, I heard that Capital One's break-even APR interest rate was 9.9%. Any interest charged over that was profit.

It depends on the business model. CapOne is basically a predatory lender making money off people who can't pay off their debt. Amex makes money from its high value customers and the interchange fees. Amex's fees are higher, and many of their cards are charge cards (which don't even have an interest rate because they must be paid in full every cycle).

> What surprising is the cards currently for high-worth users have terrible rewards programs, ie the amex black card.

There's a big assumption built into your idea here.. what if the high-worth people don't care about the rewards programs? I assume (no data) that their net worth is high enough that a few percent on the little (in their mind) on their card isn't worth shopping around or even thinking about it.

What you then do is target the perks to be something this hypothetical person would want, which is likely time. If they can save time with your card's perk over that of another card, you win them.

Or make the perks special services, rather than monetary rewards. For instance, I've heard of many high-end cards that provide general-purpose concierge services with membership.

At least they used to. I got a notice last year that the concierge service and some other access program were dropped and things like late fees were increased. At one point, it had a rewards program that they also discontinued and frankly I'm not sure whats left as a benefit on the card. Need to shop for a new card I guess but I hate changing card numbers and updating every website.

In the EU this business model has been gutted by regulatory changes which have pretty much fixed the percentage fee at such a low level that there is no margin to offer rewards.

> Hopefully the interest paid on debts breaks even with the defaults.

Well, fundamentally it must do otherwise the business model for CC companies is pot. Actually, the core for any CC is, of course, the data scientists who build the risk models to work out that red line.

> So you should ideally have at least 3% of every transaction to give back to the user in rewards while living off of the 30 cents per transaction.

From that you have to pay the bills, and of course MC/VISA take a cut too. Don't get me wrong; it's totally fine to work with that 3% but...

a) it's a fixed part of any transaction, which is a pretty dependable to get in your coffers (as opposed to, some money each month for your customer which you might not get depending on their circumstances)

b) it would be very easy for this fee to get regulated (as in the EU) and thus kill your business model. Lots of risk there.

Not to put you off. I think there is definitely innovation worth doing in that space.

> I have been contemplating creating a new credit card the last few years.

Takes an insane amount of money (because; you have to front a lot of "cash" to your customers in the form of credit, obviously). I'd be super interested if you do this because (having recently started working at a CC company) there is a lot of innovation to do in this space!

> In the EU this business model has been gutted by regulatory changes which have pretty much fixed the percentage fee at such a low level that there is no margin to offer rewards.

Thank goodness. I only hope we can do this in the US. The amount of time, money, and human creativity that goes into complicating what should be a simple business--transferring money--is absurd.

Were it in my power, I'd also make consumer loans and money transfer two entirely separate businesses. If somebody wants to buy stuff without hauling around cash, great. And if somebody wants to consciously go out and get a consumer loan, also great. But conflating these functions takes advantage of cognitive biases to trap people in debt.

From my perspective, SPG was the best rewards card of 2007. It's the best overall rewards offered by American Express, but there are better cards. It, of course, depends on your spending habits but off the top of my head, I'd opt for Citi Prestige or Chase Sapphire over SPG.

Besides, people who want to maximize rewards will specialize. BCP for 6% back on groceries, Sallie Mae for 5% on Amazon and Gas (discontinued), Prestige for 5% back on travel, Ink for 5% back on utilities, Discover and Freedom for their rotating 5% categories and great online cashback, and finally something like Citi DoubleCash for 2% on everything else. A single general-purpose card can't compete with a stable of specialists. And if somebody lacks the spending to support ROI on several cards including some with annual fees, that person is not the lucrative VIP you're after.

If you missed that sallie mae card, you can get amazon's house card for a flat 5% statement credit directly applied each statement. It's zero hassle. There's no reason to choose the 3% amazon chase card.

Also, I simply can't figure out how amex makes money on the bcp. I hit the full $6k of groceries and just use it for groceries and gas.

The 5% statement credit on the Amazon card is only for Prime members, so if you're not already one that could be a big reason to stick with the 3%.

Only if you have prime.

oops, you're totally right, but if you have the level of amazon spending that justifies prime, this basically makes prime free at the price of remembering to pay that card off one a month...

An extra 2% cashback means you need $5000 a year to justify it. However, both Discover and Chase Freedom occasionally have a 5% quarter for Amazon (freedom had 10% last 4Q for a few weeks), limit $5000, so you really need to be spending more to justify it.

Edit: also, anyone using a credit card should have autopayments set up. Unless you're extremely organized and have a good reason to do otherwise.

I don't like autopayments, because I need to log in at least once a month to check my statement anyway, to make sure there are no unauthorized charges (or restaurants charging the wrong amount, etc.). Once I check the statement, then I pay. As an added bonus, the payment status (is the statement balance $0?) serves as a flag to tell me whether I've checked this month's statement yet.

You can still use it as a failsafe. Schedule it to kick in on the last possible day, that way if you pay earlier nothing happens, but if you forget there aren't fees and negatives on your report.

Or just have them send emails for new statements, and don't archive/delete the email until you've looked through the transactions.

If you spend roughly 2-3k like I do, you can view it as a 50% discount on prime. And the discount can be increased if you accept their $1 credits (per item if you check them out individually) for not using 2 day shipping for stuff that isn't urgent, which can now be spent on kindle books too...

Setting up autopayments to pay the minimum on the day before it's due is definitely worth doing just in case anything slips your mind.

I don't know, but I do know that in my pocket my wallet is a simple iphone sleeve and I keep my ID, transit card, and only 2 credit cards -- and BCP is one of them. The giant credit line and secondary benefits like roadside assistance just gives me a peace of mind in American Express. A friend once needed an air ambulance in central america and the pilot wouldn't fly without guarantee of payment -- Amex approved a $30k authorization over the phone with the pilot on his PRG. Also, they've always been on my side in disputes. I had an issue with Stamps.com, i was busy, i waited months to resolve it, i didn't ask for it all to be refunded but it just was.

I imagine that brand loyalty will be worth it for Amex in the long run, but i'm certainly coming out ahead for now.

CC fees cart wildly per merchant. How would you deal with that uncertainty?

If you travel, AMEX has the highest value of rewards if you apply them to airline rewards.

On the other hand, if you're spending enough money to get a black card, futzing with points is probably unproductive.