Introduction
We have a series on risk that won’t write itself, so I guess that’s what I’m here for. Smart readers can guess today’s entrant (because it’s in the title): Shutdown risk. What’s that? Well, (a) duh, and (b) the risk that a bank, FinTech, credit card issuer, or other counterparty throws its virtual hands up in the air and says “that’s a nah from me son.”
Shutdowns as a Spectrum
Shutdowns come in many forms, much like your crazy ex’s promises. A few examples:
- The Gentle Backoff: When you say jail to a churner, the first thing they’ll think of isn’t metal bars and locks, but rather AmEx Pop-Up Jail, which prevents you from getting future sign-up bonuses.
- The Not-so-gentle Backoff: Small to medium sized credit unions are great at this, generally something like “if you don’t stop refunding those travel redemptions the week after you book them, we’re going to close your account”.
- The Cold, Calculated Axe: Banks famously don’t care about feelings, and the good ones have a risk algorithm or two that, when alarms, leads to immediate shutdown. The really good ones will send you a polite letter telling you to pound sand and kick rocks while you’re at it too.
- The Random Wildcards: Gift card sites, obscure portal aggregators, and fly-by-night buying groups don’t have compliance departments, instead they have automated ban-hammers. Breathe on them sideways when the wrong
Tobyanalyst is looking and your account is locked instantly, often taking your pending payouts, rewards, and maybe your money with it.
Some shutdowns obviously sting more than others.
Managing Shutdown Risk
I know, I know, no one likes to be managed. So do the managing yourself:
- Earn and Burn: Points sitting in an account aren’t assets, they’re unbacked IOUs
- Learn about an Institution’s Triggers: Some issuers that rhyme with schminkrony hate cycling for example, while other FinTechs hate when you taek them as nothing but a hub, while others hate it when you chase their deposit accounts; know the pitfalls so you can dodge ’em
- Isolate Your Real Accounts: Is your mortgage payment coming out of the same account that you’re depositing buyer’s group checks into? Well, cut it out. Would P2 be eternally mad if you lost your Kohl’s card? Maybe be careful with Capital One
- Consider horizontal scaling: A dozen accounts for your friends and family each spending $50,000 a month is a lot less likely to ring alarms at a FinTech compared to spending $600,000 a month in a single account
As a corollary, perhaps develop a thick skin.
Coping
Remember: If you haven’t been shutdown by an institution, you haven’t gone hard enough yet.
Happy Thursday friends!
Next time: Managing digestive risk.