Lots of folks will gladly tell you how awesome the American Express Membership Rewards program is (and often include a link for you to enroll, earning them a few bucks for the effort). The points are reasonably easily transferred to a variety of loyalty programs and the overall value is decent. Plus their enrollment bonus numbers are often pretty solid, including some incredibly generous offers every now and then. But all those points have to be paid for eventually. For American Express that point is apparently now. And the numbers are not pretty.
The company announced a number of financial charges and restructuring efforts late last week, many related to their credit card products focused on lower income markets. But there was one rather surprising number which also cropped up in the list of charges the company would be recognizing:
It also said it would record $342 million in expenses related to its cardholder rewards program after determining the rate at which its customers redeem points earned on purchases is higher than previously calculated.
It would seem that the folks running the actuarial tables to bet on how much servicing the points will cost missed. Badly. More than a third of a
trillion billion dollars in redemption costs AmEx pays to partners was missed as part of their recent performance efforts. Is this because customers are becoming smarter about how they redeem their points? Or because they really just screwed up in the accounting department? Hard to know for certain but neither is necessarily a comforting thought.
The company was still profitable in the quarter despite the write-downs so this isn’t likely to lead to massive restructuring of the awards side of their business. Still, it has to raise some concerns in the world of cardholders churning for points. As the cost to service the points rises the acquisition costs of customers grows. Trying to keep that number down is one of the primary keys to building a strong customer portfolio. If the enrollment bonuses cost the banks more over time then either the points have to decrease in value or the number issued has to decline. Neither of those is a particularly enticing option.
Definitely something to pay attention to in the coming weeks and months; maybe there was a very real business reason so many affiliate link providers got cut recently.