There have been rumours that American Express might no longer allow customers to churn their credit cards. We will see if there is any truth to this rumour in the coming months. Churning is the process of signing up for a credit card, then cancelling and signing up for the same credit card again later on. Some credit card companies only allow you to get one sign up bonus per lifetime.
There are so many reasons why people want to churn. Here are some of the possible reasons:
- Because it is permitted
- To take advantage of another big sign up bonus to rack up your points faster
- Because we want to avoid paying the annual fees, so we cancel to take advantage of another first year annual fee being waived
- Better sign up bonus than the one we initially got when we first signed up for the card
Personally I have never churned a credit card before because there are so many different cards to choose from that I have no yet gone through all the cards that I am looking at. By the time I finish my rounds, the old card that I had before might no longer exist and a new product might be out instead.
Of course as a consumer, we all want to rack up as many points as possible; however, there is a major downside to this approach. When so many new points are being pumped into the market, the value of each point starts to devalue. The reason for the devaluation is because more and more people can redeem their points for free things, which means less cash flow is flowing through the businesses. Someone still needs to pay for the expenses.
Therefore, I believe that it is better that each point is more valuable, rather than the dilution, so I am leaning towards preventing consumers from being allowed to churn the credit cards.
However, I do have a counter-proposal. Instead of allowing consumers to churn, more spend bonuses need to be built in. The point is to create more incentives for people to retain the same credit card, rather than giving them more reason to cancel. There are even some existing examples offered by Capital One that give incentives to keep the credit cards longer:
- $120 annual fee
- Earn 35,000 bonus points after your first purchase
- Earn 10,000 anniversary bonus points every year
- Earn 2 points for every $1 spent on all purchases
- $120 annual fee
- Earn 60,000 bonus points after your first purchase
- Earn 5,000 bonus points for every $10,000 you spend
- Earn 5 points for every $1 spent at any IHG hotels
- Earn 2 points for every $1 spent on all other purchases
- Platinum Elite status with IHG Rewards for the life of your credit card account
As you can see, both credit cards give either an anniversary bonus or a bonus for spending a minimum amount. If I can make use of the rewards associated with each credit card, I would be more than happy to retain the credit card for a long while. I currently have the Capital One Aspire Travel World MasterCard, I have already paid the annual fee 3 times now, yet I am still very happy with the card. Hopefully other credit card companies can follow Capital One’s lead.
The idea is that the more perks that are associated with a credit card, the more reason for people to retain the credit card. Credit card companies can even consider offering a one-time bonus for retaining a credit card for a specific number of years. Let us say after 5 years of having the credit card, we can be awarded a one-time bonus of 10,000 points.
The other issue is the annual fee. When a fee is too high, it gives too little reason to retain the credit card. There are so many creative ideas that credit card companies can come up with. For example, if we spend $10,000 a year on a credit card, they can potentially waive the annual fee for the following year.