An ideal business model: shower your customers with perks and have someone else pay for it
Posted on Monday, July 23, 2007
Can you imagine having a business model that would allow you to be unsparingly generous to your customers through rewards and perks and then require someone else to pick up the bill? That’s what banks and other non-bank card issuers have been doing for years.
You’ll remember a few years ago when credit card companies started offering reward programs. Incentives to use your credit card included cash back, reward points, travel perks, etc. All of those rewards cost money and business owners who take credit cards ended up footing the bill. The fees that credit card issuers charge have gone up an amazing 117% since 2001. Take a look at an except from a recent Forbes article The Worlds Most Exclusive Cards that was provided to me by Aneace Haddad:
Though lenders aren’t going to make much in the way of late fees and interest charges (assuming rich people pay their bills on time and in full, which isn’t always the case) they make up for it in the fees they charge to merchants to process transactions. American Express network transactions mean fees of about 4% each purchase, so a $60,000 car charged to a Black Amex could potentially rake in $2,400 in processing revenue. Even if the issuer takes half of that and pays it back to cardholders in the form of outlandish perks, the profits are still good.
