I’m a sucker for airline miles, but I know that my loyalty is largely misplaced, and I’m aware of what these schemes represent:
No sector is more dependent on its credit cards than the airline industry. Even though all of the country’s major airlines lost money on flying passengers last year, the companies still earned billions in operating profits — mostly from revenues they earned from unregulated frequent-flier programs they operate through branded credit cards.
In 2023, Delta Air Lines, the world’s most lucrative airline, generated the bulk of its $4.6 billion in operating income from its deal with American Express, and so far this year, nearly all of its earnings have come from the credit card company. This arrangement led the legal scholar and airline expert Ganesh Sitharaman to conclude that “frequent-flier [points] systems… turned airlines into something more like financial institutions that happen to fly planes on the side.”
But here’s a scheme I got out of a couple of years ago:
The total balances held across these digital apps have exploded, in Starbucks’ case to nearly $2 billion, larger than the balances managed by many small- and medium-sized banks — except without any of the same regulatory oversight.
A significant portion of the clientele who sign up for these programs forget about their balances and never spend them. Customers have essentially placed their money in a savings account that accrues no interest, while giving these conglomerates an interest-free loan to use at the company’s discretion.
In addition to the financial aspect, here’s another one, of the kind that keeps me up at night:
A driving factor behind Big Tech’s payments networks — as with all embedded finance — is the new opportunities it provides for consumer surveillance.
[…]
By running payment networks, Google, Meta, and Amazon have a God’s-eye view into financial transactions that take place not just on their own platforms but across others when users pay with their digital wallets.
Also, pushing credit cards has become a problematic aspect of unrelated retail jobs:
With their salaries on the line, retail workers are often forced to hawk cards to customers without adequate training to evaluate creditworthiness. For this reason, regulators have warned that the underwriting standards for retail cards are less stringent, which may be driving customers into bad deals and debt.
However, here’s some inaccuracy:
[F]unds sitting in a Venmo account or a stored-value account in Apple Wallet are not insured.
I assume that by “stored-value account” they mean Apple Cash. Despite an alarmist headline, Consumer Reports explains how Apple Cash becomes FDIC-insured if you “register your account with Green Dot, the bank Apple Cash uses”—by which they mean (without explaining it) you’ll have to verify your identity through Apple Wallet. On the other hand, “[w]ith Venmo, only funds that arrive via direct deposit or remote check capture are covered, not those sent by other Venmo users”. I’ll use that as yet another reason why I refuse to use Venmo.