How does Alliant Credit Union make money on their Credit Card?

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naveen
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How does Alliant Credit Union make money on their Credit Card?

Post by naveen » Tue Jan 08, 2019 8:52 pm

With Alliant Credit Union giving 3% flat cash back on all purchases on their credit cards, I wonder how do they make money on it. I believe that the interchange fee that they earn is less than the cash-back. There are absolutely no limitations on the cash-back except that it is for the first year and then drops to 2.5% flat.

Thoughts?

Mike Scott
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Mike Scott » Tue Jan 08, 2019 8:59 pm

There is an annual fee that requires a fair amount of spend to equalize with a free 2% card. Presumably, people getting their credit card may do other business with them also. Alliant must think there is some benefit or the offer would not exist. If nothing else, it has given national name recognition to an otherwise unremarkable credit union.

k3vb0t
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by k3vb0t » Tue Jan 08, 2019 9:06 pm

naveen wrote:
Tue Jan 08, 2019 8:52 pm
With Alliant Credit Union giving 3% flat cash back on all purchases on their credit cards, I wonder how do they make money on it. I believe that the interchange fee that they earn is less than the cash-back. There are absolutely no limitations on the cash-back except that it is for the first year and then drops to 2.5% flat.

Thoughts?
Think of how many people you know that believe in the BH way of saving (or Dave Ramsey until the investment step) vs the people who don't. Think of all the people who live paycheck to paycheck vs those who save 20%, 30%, 50% of their income in a 3 fund portfolio. Think of the stories about furloughed federal workers who can't pay their bills because they were relying on their next paycheck.

My take: lots of people will get the cashback card and pay interest on it. The credit union will probably get a percentage of all cardholders to do other profitable business with them. And the CU may be able to sell some of the spend data (haven't looked at their agreements/privacy statements obviously).

ETadvisor
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by ETadvisor » Tue Jan 08, 2019 9:16 pm

naveen wrote:
Tue Jan 08, 2019 8:52 pm
With Alliant Credit Union giving 3% flat cash back on all purchases on their credit cards, I wonder how do they make money on it. I believe that the interchange fee that they earn is less than the cash-back. There are absolutely no limitations on the cash-back except that it is for the first year and then drops to 2.5% flat.

Thoughts?
Thanks to this board I learned about the card. I am closing down on year 1 and enjoyed the 3% with no annual fee. I am unsure if I should embark on year 2 with annual fee and 2.5% cash back. OP not meaning to hijack your thread but did other BHs keep using this card after year .

tmcc
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by tmcc » Tue Jan 08, 2019 9:19 pm

Also have this card,it is excellent. If your spend is > $12k / yr in year 2 then it is a no brainer vs Citi double cash (2% no fee). Minimal work for max reward... if you're into reward mining then its a different animal.

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Nate79
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Nate79 » Tue Jan 08, 2019 9:25 pm

The merchants are probably paying for most, if not all of that cash back cost in fees.

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Voltron
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Voltron » Mon Apr 15, 2019 3:58 pm

Just got an email. Alliant Credit Card Visa raising their annual fee to $100 per year. Still decent card for big spenders but that's a significant jump.

PluckyDucky
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by PluckyDucky » Mon Apr 15, 2019 4:11 pm

So you have to spend $20k just to equal the citi 2x card with that annual fee.

Many of my monthly bills are echeck only, no CC allowed if you want to avoid a convenience fee.

So how much crap do you buy a year to spend 20k? Not worth it.

Probably worth it for ACU though.

Lumpr
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Lumpr » Mon Apr 15, 2019 4:17 pm

Ever wonder why some merchants give you a discount if you pay cash?

Merchants pay credit card companies a fee (generally on a per transaction basis, as I recall the fees are generally between 1% - 4%). It's been awhile since I looked into it, so my numbers may be off.

DrivingFun
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by DrivingFun » Tue Apr 16, 2019 7:21 am

They recently raised the fee on this card from $49 to $99.

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White Coat Investor
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by White Coat Investor » Tue Apr 16, 2019 7:24 am

They won't give you a credit limit higher than $25K in the first six months no matter what your income. It really limits how much you can put on it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

aristotelian
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by aristotelian » Tue Apr 16, 2019 11:05 am

Lumpr wrote:
Mon Apr 15, 2019 4:17 pm
Ever wonder why some merchants give you a discount if you pay cash?

Merchants pay credit card companies a fee (generally on a per transaction basis, as I recall the fees are generally between 1% - 4%). It's been awhile since I looked into it, so my numbers may be off.
That's the question. If Visa takes its cut, and Alliant is giving 3% back to the customer, that leaves Alliant likely taking a loss.

JustinR
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by JustinR » Tue Apr 16, 2019 4:12 pm

aristotelian wrote:
Tue Apr 16, 2019 11:05 am
Lumpr wrote:
Mon Apr 15, 2019 4:17 pm
Ever wonder why some merchants give you a discount if you pay cash?

Merchants pay credit card companies a fee (generally on a per transaction basis, as I recall the fees are generally between 1% - 4%). It's been awhile since I looked into it, so my numbers may be off.
That's the question. If Visa takes its cut, and Alliant is giving 3% back to the customer, that leaves Alliant likely taking a loss.
I think in this situation Visa and Alliant are one entity - they have some agreement to share the merchant fee and pay out the rewards from the fee. They both benefit from you using their card more.

It can also be a loss leader in some cases, where some of the rewards are covered by interest or other revenue.

ralph124cf
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by ralph124cf » Tue Apr 16, 2019 7:26 pm

White Coat Investor wrote:
Tue Apr 16, 2019 7:24 am
They won't give you a credit limit higher than $25K in the first six months no matter what your income. It really limits how much you can put on it.
You can easily charge $100K per month, provided you pay every few days, or any time you charge more than $10K in a day. You can also pay ahead, if the 3% cash back is more monthly than you are earning on your cash.

Ralph

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White Coat Investor
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by White Coat Investor » Wed Apr 17, 2019 10:11 am

ralph124cf wrote:
Tue Apr 16, 2019 7:26 pm
White Coat Investor wrote:
Tue Apr 16, 2019 7:24 am
They won't give you a credit limit higher than $25K in the first six months no matter what your income. It really limits how much you can put on it.
You can easily charge $100K per month, provided you pay every few days, or any time you charge more than $10K in a day. You can also pay ahead, if the 3% cash back is more monthly than you are earning on your cash.

Ralph
I actually asked if I could send them a check for $155K and then put a $180K charge on the card and was told no.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

BeerTooth
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by BeerTooth » Wed Apr 17, 2019 11:23 am

I just received the email notifying me about the yearly fee increase - from $59 to $99/year. Is this still the best cash back card for me?

I don't want to mess around playing games with different categories each quarter. I pulled my transactions from last year, and I averaged about $3725/month, or $44,700 a year total. At 2.5% cash back, that's $93/month, or $1,118/year in cash back. So the yearly fee negates about a month of cash back. Are there any better options out there for me, or just suck it up and pay the extra annual fee?

lukestuckenhymer
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by lukestuckenhymer » Wed Apr 17, 2019 12:23 pm

I have a fee-free Capital One card that gives 3% on all dining and entertainment. I eat out at restaurants a lot and almost exclusively use it for that. I also exclusively use my fee-free 5% rotating category cards only for the 5% categories (Gas, groceries, home improvement, dining, Amazon purchases...)

I am causing them to lose money every month. Makes me wonder if my cards might mysteriously get cancelled one day...

ralph124cf
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by ralph124cf » Wed Apr 17, 2019 4:31 pm

White Coat Investor wrote:
Wed Apr 17, 2019 10:11 am
ralph124cf wrote:
Tue Apr 16, 2019 7:26 pm
White Coat Investor wrote:
Tue Apr 16, 2019 7:24 am
They won't give you a credit limit higher than $25K in the first six months no matter what your income. It really limits how much you can put on it.
You can easily charge $100K per month, provided you pay every few days, or any time you charge more than $10K in a day. You can also pay ahead, if the 3% cash back is more monthly than you are earning on your cash.

Ralph
I actually asked if I could send them a check for $155K and then put a $180K charge on the card and was told no.
I can understand them not doing it for a check. It might have been possible with an EFT or wire transfer.

Ralph

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White Coat Investor
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by White Coat Investor » Wed Apr 17, 2019 7:24 pm

ralph124cf wrote:
Wed Apr 17, 2019 4:31 pm
White Coat Investor wrote:
Wed Apr 17, 2019 10:11 am
ralph124cf wrote:
Tue Apr 16, 2019 7:26 pm
White Coat Investor wrote:
Tue Apr 16, 2019 7:24 am
They won't give you a credit limit higher than $25K in the first six months no matter what your income. It really limits how much you can put on it.
You can easily charge $100K per month, provided you pay every few days, or any time you charge more than $10K in a day. You can also pay ahead, if the 3% cash back is more monthly than you are earning on your cash.

Ralph
I actually asked if I could send them a check for $155K and then put a $180K charge on the card and was told no.
I can understand them not doing it for a check. It might have been possible with an EFT or wire transfer.

Ralph
I'd certainly be willing to do that if that was all it took. I had hoped to use it for estimated quarterlies (that's what I've been using my Fidelity card for mostly) but I could max out both cards and still not be able to cover the bill. That's my biggest expense every year, so it would be nice to earn an instant 1.13% on it! #firstworldproblem
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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whodidntante
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by whodidntante » Wed Apr 17, 2019 8:02 pm

White Coat Investor wrote:
Wed Apr 17, 2019 7:24 pm
I'd certainly be willing to do that if that was all it took. I had hoped to use it for estimated quarterlies (that's what I've been using my Fidelity card for mostly) but I could max out both cards and still not be able to cover the bill. That's my biggest expense every year, so it would be nice to earn an instant 1.13% on it! #firstworldproblem
If you want, you can move 100k to Merrill Edge (and get a bonus), open a BoA checking account (and get a bonus), and then use either BoA Premium or BoA Travel Rewards to get 2.625% cash back on non-bonus category spend (and get a bonus). My income is lower than yours, but BoA still extended me 75k in credit across all cards, and they've been willing to let me move credit limits between cards every time I asked.

Jags4186
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Jags4186 » Wed Apr 17, 2019 8:18 pm

naveen wrote:
Tue Jan 08, 2019 8:52 pm
With Alliant Credit Union giving 3% flat cash back on all purchases on their credit cards, I wonder how do they make money on it. I believe that the interchange fee that they earn is less than the cash-back. There are absolutely no limitations on the cash-back except that it is for the first year and then drops to 2.5% flat.

Thoughts?
There are many ways they make money:

1) Annual Fees
2) Interchange Fees
3) Interest
4) Myriad other fees (cash advance fees, late fees, etc. etc.)
5) Breakage
6) Cross selling

There are plenty of cards that offer $500+ bonuses for $3000-$5000 in spend. Giving 0.5% incremental bonus over normal earnings means someone would need to spend $100,000 on this card to get the same “bonus” that someone with another card who spends $3000 a puts the card in the sock drawer. So from that standpoint it’s pretty cheap.

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Voltron
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Voltron » Wed Apr 17, 2019 10:12 pm

BeerTooth wrote:
Wed Apr 17, 2019 11:23 am
I just received the email notifying me about the yearly fee increase - from $59 to $99/year. Is this still the best cash back card for me?

I don't want to mess around playing games with different categories each quarter. I pulled my transactions from last year, and I averaged about $3725/month, or $44,700 a year total. At 2.5% cash back, that's $93/month, or $1,118/year in cash back. So the yearly fee negates about a month of cash back. Are there any better options out there for me, or just suck it up and pay the extra annual fee?
I was livid about the fee increase as well. However, for those of us who pay estimated federal and state taxes by this credit card, still make decent money back.

Lets say for example, I am paying $98,000 in estimated federal taxes total annually, and the fee is 2%, yet this card is 2.5% back. That 0.5% net back is a nice $490, and this is on top of regular expenses. Still good but agree, I wonder if there truly is a better no category restriction, cash back card than Alliant?

HEDGEFUNDIE
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by HEDGEFUNDIE » Wed Apr 17, 2019 10:16 pm

Voltron wrote:
Wed Apr 17, 2019 10:12 pm
BeerTooth wrote:
Wed Apr 17, 2019 11:23 am
I just received the email notifying me about the yearly fee increase - from $59 to $99/year. Is this still the best cash back card for me?

I don't want to mess around playing games with different categories each quarter. I pulled my transactions from last year, and I averaged about $3725/month, or $44,700 a year total. At 2.5% cash back, that's $93/month, or $1,118/year in cash back. So the yearly fee negates about a month of cash back. Are there any better options out there for me, or just suck it up and pay the extra annual fee?
I was livid about the fee increase as well. However, for those of us who pay estimated federal and state taxes by this credit card, still make decent money back.

Lets say for example, I am paying $98,000 in estimated federal taxes total annually, and the fee is 2%, yet this card is 2.5% back. That 0.5% net back is a nice $490, and this is on top of regular expenses. Still good but agree, I wonder if there truly is a better no category restriction, cash back card than Alliant?
People like you are why they had to raise the fee!

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Phineas J. Whoopee
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Re: How does Alliant Credit Union make money on their Credit Card?

Post by Phineas J. Whoopee » Thu Apr 18, 2019 2:55 pm

Presumably everyone is aware credit unions are not for profit. They have to cover their costs, including loan defaults, but they don't have stockholders to produce a return for.
PJW

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