Today's post is short and sweet.
All of us have gotten value out of huge credit card signup bonuses. But how do the banks make money from giving away money or airline points?
Put simply, they earn money from your loyalty.
Studies show that the average cost for any business to 'obtain' a new client, is 7x what is it is retain a current client.
Every business would rather spend less to keep its clients, than spend lots more to get new ones. But in an effort to grow, they do spend money to land new clients.
With banks, they choose to give away money, points, and other card perks, to gain your business. They hope you will stick with them, not review your cards, not pay attention to annual fees, or just not bother checking what their competitors offer and switch cards.
Ah, but we must! Otherwise we could miss great deals which are worth hundreds of dollars in free giveaways for little effort. Our doing this also makes the banking system far more competitive here in Australia.
In the States it is not far-fetched to get more than $5,000 cash and points value from credit cards EVERY YEAR! Australia is not even close to that figure, but there are good offers out there, and if we pay attention and get them the market here will have to become ever more competitive.
Hat tip to Million Mile Secrets in this post explaining how banks and large businesses see the return on their huge advertising and new client expenditures.
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