I got to wondering how good people are at redeeming their points and miles, and a bit of googling returned this article about a study which claimed that one third of all your hard-earned loyalty earnings go unused.
Being the empirical sort, I set out to verify this for myself if possible. This involved going to the Discover 2013 annual report, which you can get here if you’re curious. The report doesn’t explicitly say how many points are earned or redeemed, but it does give a few hints. For starters, in summarizing its accounting for earned rewards, Discover says that a 100 basis point change in redemption would result in additional expenses of $13 million. 100 basis points is a fancy way of saying 1 percent, so this would imply total rewards earned, both redeemed and unredeemed, are valued at $1.3 billion.
The report also gives this statement: “For the calendar year ended December 31, 2013, fiscal years ended November 30, 2012 and 2011 and one month ended December 31, 2012, rewards costs, adjusted for estimated forfeitures, amounted to $1.0 billion, $1.0 billion, $879 million and $123 million, respectively.”
So using this imprecise calculation, if we divide rewards costs by rewards value, we get $1.0 billion divided by $1.3 billion, which yields 77%. So 23% vs 33%–that’s not too far off, anyway. Regardless of what the true number is, there are obviously a lot of earned points going unused.
Credit card issuers are certainly aware of this, which is why they usually add some hoops to jump through (for example, minimum redemption amounts) in order to redeem points. Consider things from an issuer’s perspective: if your know that, say, only 70% of your points will be redeemed, then that means a 2% rewards card only costs you 1.4%. And in the case of the new Citi card, it will be even less than 1.4% since they only pay out on balances that have been paid down.
BUT… if you’re Citi, and you’re giving out American Airlines miles, then you’ve already paid American for all those miles. Paying one mile per dollar earned will cost you exactly one mile per dollar earned, not seven tenths of a mile earned, since the benefit of unused miles goes to American, not Citi. Whereas Citi is in possession of your ThankYou Points, so one ThankYou Point earned actually costs Citi only seven tenths (or whatever) of a ThankYou Point.
All of which is to say those 100,000 AA mile bonuses must have really stung.