In the miles & points world, we’re rather obsessed with maximizing value, and scoff at the thought of not redeeming our points for multiple cents each. That almost always comes in the form of travel redemptions, typically by moving points to airline partners, often for premium cabin redemptions.
However, I think sometimes we forget the extent to which we’re not average consumers…
In this post:
Amex reveals the way that members redeem points
OMAAT reader Jack sent me the following email, along with the below screenshot.
Amex sent me this “Points Pulse: year in review” email today, and I found this part fascinating. I know that points optimizers are a minority, but somewhat surprising that points transfers don’t even crack the top 3? I don’t think they’d lie given how specific they are in the footnote. I wonder if the order is accurate – surprising to see gift cards as #1 – maybe they’re just trying to push people in that direction. Amazing for AmEx that all three of the most popular options cost them less than one cent per point. Can’t help but think of Bilt who are competing against this and have customers who are way more likely to transfer points (usually with massive bonuses).
Personally, I value Amex Membership Rewards points at 1.7 cents each, and that’s thanks to the ability to get outsized value by moving the points to transfer partners, and then redeeming for first and business class travel.
For what it’s worth, all three of these redemption options — gift cards, paying with points at check-out, and statement credits — get you a fixed 0.6-0.7 cents of value per point.
This is what makes credit card economics fascinating
Credit card issuers make money through several means, including interchange fees, annual fees, and financing charges.
What’s interesting is that when you move your Amex points to an airline or hotel partner, it’s potentially actually quite costly for them. There’s no set pricing across the board, since all currencies are worth different amounts, but we have reason to believe card issuers are paying around 1.5 cents per point for some currencies.
So to me, it’s a fascinating twist to credit card economics. The major banks are of course very profitable, but they’re certainly not making money on all customers, and certainly not equally. Quite to the contrary, many “maximizers” might not actually be that profitable, due to how they redeem their points.
All else being equal, card issuers would of course rather that you’re redeeming your points for 0.6 cents of value, rather than something that might be costing them more than double as much. It’s just wild that some people are basically earning back the entire interchange fee in the form of credit card rewards (and sometimes even more), while others are earning back maybe well under one-third of the typical interchange fee.
To me, this is also all such a reflection of how sub-optimally people use credit cards, and how they might choose a card issuer based on name or reputation. But if your goal is to simply earn cash back (which is what all of these popular redemption options are, more or less), there are very rewarding cash back cards in the market that can earn you a minimum of 2% back.
Bottom line
Amex has revealed the top ways that members redeem points, and they include gift cards, paying with points, and statement credits. These redemptions get you an average of 0.6-0.7 cents of value per point, which is a fraction of the value that many of us try to get with our Amex points. For that matter, it’s also a fraction of how much many travel redemptions cost Amex.
It’s a good reminder of the extent to which those of us optimizing our points are the minority, and how most people aren’t actually very savvy about the card they choose (because if you wanted to earn cash back, you can do much better than a 0.6-0.7% rate of return).
Are you surprised by these Amex points redemption details?
The note says it is based on total number of redemptions not total points redeemed. Points transfers are usually very large one offs while these are more frequent, smaller redemptions. It is possible, and even likely, that transfers are in the top 3 for total points redeemed
My boss' Amex biz platinum is used for a number of company expenses every month, to the tune of $30k+ per month. At the end of the year he redeems his miles for gift cards for employees, which is a nice bonus, but as a points enthusiest it pains me to watch him waste away hundreds of thousands of amex points on gift cards when there is no company policy that prohibits him from redeeming the miles for himself.
Provide him the gift cards in exchange for the points LOL
Just shows how much of a niche the points and miles game is.
This is the same reason Chase dropping the 1.5 cents in their travel portal was so damaging. Readers here were comparing that with other value redemptions but most users weren't. It was just their go to. It was easy for relatively good value. Too easy. Chase couldn't sustain.
I wouldn't be surprised if this list is made up by AMEX to push people toward the least expensive redemption options for AMEX. These are the categories they likely want you to redeem your points in.
Context: Pay at checkout (amazon use 1 MR get x off) can be costly for amex. Many biz owners use small statement credits on their monthly bill. Gift card redemption transactions can be lifted by bonus options.
Notably, Amex uses number of transactions and not volume of exchanged MR. Further, no use percentage is given to any category so partner transfers may be close behind and possinly greater volumes.
Usually xfer MR to Hilton at...
Context: Pay at checkout (amazon use 1 MR get x off) can be costly for amex. Many biz owners use small statement credits on their monthly bill. Gift card redemption transactions can be lifted by bonus options.
Notably, Amex uses number of transactions and not volume of exchanged MR. Further, no use percentage is given to any category so partner transfers may be close behind and possinly greater volumes.
Usually xfer MR to Hilton at 25% bonus (1:2.5) to top off account for redemptions. I'm not an expensive date.
Using points for travel, especially transferring points also costs time. Let's not forget that the average person can't even remember the username and password to the majority of their accounts.
So when you calculate that this could take the average person an hour or more to pull off, it does have some validity.
the vast majority of the people in the world do not travel or want to travel near as much as people on sites like this do.
The rewards ecosystem reflects that esp. given that airlines and travel related services have such a high profile position in the rewards ecosystem.
Got another 10,000-mile trip booked yet?
Everyone is suggesting that people who redeem for gift cards/cash are unsophisticated. But in many cases they are acting rationally.
For anyone who has a relatively low credit card spend (i.e. most people), you won't earn enough points to get a high-value redemption. If you do transfer to a frequent flyer program, you then have to contend with the ever-decreasing availability of award seats when you actually want to fly, and then tracking when your...
Everyone is suggesting that people who redeem for gift cards/cash are unsophisticated. But in many cases they are acting rationally.
For anyone who has a relatively low credit card spend (i.e. most people), you won't earn enough points to get a high-value redemption. If you do transfer to a frequent flyer program, you then have to contend with the ever-decreasing availability of award seats when you actually want to fly, and then tracking when your points expire. Meanwhile, a gift card is effectively immediate cash in your hand.
I remain convinced that the vast majority of credit card holders would be best off getting a simple 2% cash back card.
If the "ever-decreasing" myth were true, your advice would be sound.
The common refrain I hear: "I tried and tried to get a flight but there's nothing so I gave up and redeemed my points for a flatscreen TV."
"I tried" = "I approached it wrong so I failed"
It's unclear what the cost of gift cards are for Amex. Direct statement credit is probably the most costly, with point transfer less so.
Well its become a lot harder in the last couple of years to find good flight or hotel redemptions. The space has exploded in popularity and its become increasingly impossible to actually get value out of ones points. No wonder these redemptions arent popular in the grand scheme of things.
This stat is based on number of redemptions.
If unsophisticated customers erase a $10 charge at checkout or via a statement credit and you transferred 999,000 points to Hawaiian to convert to Alaska/Atmos, those count the same. So 0.6-0.7 cent redemptions aren't necessarily the massive majority of points redeemed (though they still might be).
I agree this email is written to encourage you to redeem suboptimally, though.
Let's just be thankful: if everyone...
This stat is based on number of redemptions.
If unsophisticated customers erase a $10 charge at checkout or via a statement credit and you transferred 999,000 points to Hawaiian to convert to Alaska/Atmos, those count the same. So 0.6-0.7 cent redemptions aren't necessarily the massive majority of points redeemed (though they still might be).
I agree this email is written to encourage you to redeem suboptimally, though.
Let's just be thankful: if everyone were an optimizer, they couldn't afford to offer these options to us or award 200,000 SUBs!
Am I the only one who thought we were going to see the 3 biggest redemptions?
Haven’t see this discussed much but this is what’s so hard about Bilt trying to displace the big players. Their users are, on average, much more savvy with redeeming. Amex has millions of idiots as seen here. What a profit advantage
"number of remptions."
Ding ding ding. It's not the total size of redemptions.
So for example someone that does 1 40,000 point transfer and 3 $10 statement credits....is 3:1 statement credits but 6:1 points transfer in size.
I think it’s skewed by the top spenders. It’s people who have so much money they don’t care about maximizing the value and spend millions per year on their cars. Individuals or businesses. The data would be more useful if they broke it out into annual spend groupings to see what “people like us” do.
^^^ THIS ^^^
Not everyone knows about transferring points to airline FFPs to get outsized value from Amex or Chase points. And even among those who do, some people—especially those who highly value their time—find the process too time-consuming or incompatible with their schedules. This is especially true for families with kids in school: award redemptions can be extremely challenging, and not everyone is willing to juggle multiple flights, cabins, airlines, or last-minute availability like hardcore points enthusiasts...
Not everyone knows about transferring points to airline FFPs to get outsized value from Amex or Chase points. And even among those who do, some people—especially those who highly value their time—find the process too time-consuming or incompatible with their schedules. This is especially true for families with kids in school: award redemptions can be extremely challenging, and not everyone is willing to juggle multiple flights, cabins, airlines, or last-minute availability like hardcore points enthusiasts do.
I also have friends who are business owners and earn huge amounts of points. For them, redeeming points for bills or gift cards is easy and provides decent value—otherwise those points might never get used. Since they earn points so easily, they likely value them at less than a cent per point. Sometimes I’m tempted to ask them to book me a first-class flight and I’d pay them 1¢ per point, but I don’t want to bother them or ask them to spend time on something they don’t enjoy, especially when they themselves don’t see the value in squeezing out every extra dollar.
Such people are best off using a fixed 2% card like citi double cash!
I'm not surprised at all. The world is full of, how should I say it, not-so-smart people. US surely has a fair share of them. They're being influenced and taken advantage of everywhere every day, in every way, and not just financially.
I am not sure if that is true. Maybe they are so smart that they make so much money, squeezing some value of out of amex points is not their life priority...
The really smart people have a lot more profitable ways of spending their time than wasting it on maximizing the value of their Amex points.
If you make $250 an hour, why would you spend 10 hours to find the unicorn that "provides outsized value"? That would be completely irrational.