The buzz this week in the Travel community is the imminent end of Amazon Payments as a method to generate Manufactured Spending, for me it has been something that has been on the horizon for a long time now, and it is what prompted me to take action to multiply my Amazon Payment accounts now, rather than just try to fly under the radar. It seems to me that we will have a stay of execution on this one, but soon enough it will indeed be done.
It really is no surprise to those who have been in the game for a little while, because the simple truth of this is that we are on the brink of a new Financial Frontier, and we are the Beta Testers.
Statistical modeling requires a certain amount of transactions to occur in order to prove a system. This proof of concept is required to satisfy the risk modeling of a new product so as to ensure when it really ‘goes live’ to a paying public it does so with a tested model. When it comes to finance the testing needs to be ever more rigorous as governmental compliance goes hand in hand with building brand image and consumer trust.
It is easier to see a Beta test in action when the time-frame is shorter, a prime example of this was recently with Google Wallet, that offered an incredibly attractive spending opportunity for those of us in the manufactured spend game, so much so that it blossomed, and climaxed within a week. Enough transactions occurred from enough sources to test the paradigm and move forward. I think many folk involved with that felt a little like they we’re robbed of the opportunity before they could really take advantage of it…
It is a very interesting concept to examine the current monetization of electronic payment channels. It appears that it is the consumer who benefits, in terms of incentivization, and the retailer who suffers. However it is not the card issuer who ‘holds all the cards’ but the transactional platform, built by Visa, Mastercard and American Express et al. These firms charge the retailer, and then they also encourage the flow of money through their channels by working with the Card Issuers to help incentivize you, the consumer. It is the goal of the Card Issuer, those companies like Chase, and Citibank, to lock in loyal customers and encourage them to use their cards within the system.
For example, Visa will charge the merchant for the privilege to accept a Visa branded card. The merchant is required to accept the card due to market forces, the consumer has grown to accept that a merchant will accept a card, and will potentially shop elsewhere if the retailer does not offer this service. This feeling was fueled by advertising on behalf of Visa that shopping by card was so much easier and more convenient, and now that feeling of convenience is reinforced by ‘rewards’ in the form of cash-back, or points/miles from a card purchase.
So, are you a Beta tester, or is something more sinister at play?
What I find interesting is the loss leading approach to Beta testing a product. It is quite clear when one runs the numbers that certain reward systems go beyond a Beta test for process and become what might be perceived as behavioral reprogramming. As Ivan Pavlov explored with his infamous Dog theorem once we become accustomed to a process through positive reinforcement, we can respond innately to the same stimulus without the same reward.
When one looks at programs that have removed the reward, for example Amazon Payments, will we revert to using it in the future because we trust it, are familiar with the interface and think it is better than trying something unfamiliar?
Looking further into rewards, the most acclaimed card for earning points and miles is without doubt the Chase Ink Bold. It comes with a 5x Ultimate Reward earning in Office Supply stores, which is without doubt a loss leader. However, it is interesting to see how many consumers took advantage of its generosity for 5x $500 at $3.95 that are now happily earning 5x $200 for $6.95 is it just a case of weening the addict away from the juice, or perhaps more accurately the inverse, as the card companies create addicted customers?
We have an App for that
The next big thing, that is currently being developed in stealth mode is an App from Chase focused on the Chase Sapphire Preferred Card, it is very interesting to explore as one of their key components from the App is integrated booking and check paying ability – so much so that you can leave your table without asking for the check and it will be billed immediately to your card for your convenience. At 2x Ultimate Rewards for dining this app sounds like a no brainer right?
What happens when they train you to use that App every time, then reduce the rate to 1.5x? What, when it becomes 1x? What next?
The goal of card issuers like Chase with the CSP is to get you habitually using a certain card for a certain transaction. Once you are programmed and conditioned to accept that the brand is the best, the terms can change and you might not change with them. The concept is to remove the need for choice and exchange that decision with the convenience based upon trust. Trusting Mr Dimon again…
So, are you Beta testing them, or are they Beta testing you?
Of course, companies like Chase are doing this to us. After all, they are in business to make money aren’t they? We have to become more aware and make choices that benefit us not them.
Yep that is the battle, but I see a trend of relying on technology to help us ‘remember’ things like this, and when the banks are working with the technology it seems like trouble ahead. Have to keep a clear mind and broad eye on things to beat the system, and it is a great feeling when we do.