Category: Wisdom

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 Toby analyst 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.

Introduction

Conventional wisdom is often good at the macro level, and frankly terrible at the micro level. Need an example before we dive in? Let’s start with a doozy: “If a deal seems too good to be true, it probably is.” Street smart, for sure. But also, someone following that advice would have missed out on six to seven figures in Pepper gift card resale profit, $1,000 for running a $1 charge, buying unlimited AA miles for less than a half cent each, or hundreds of other churning greatest hits.

Today’s Contestant

Let’s go over another of my favorites: “buying miles doesn’t make sense except to top off an account”. There are definitely examples where that’s true, but especially on the high end of hotels and flights, that’s often wrong. I guess we’ll illustrate with a concrete example because reasons:

Let’s say you want to unlock one of the 2010-2019 achievements in churning: Five nights in a Sunrise Water villa at the Conrad Maldives, on let’s say July 1 – July 6, 2027. As of this writing, that’ll cost either:

  • $5,609.29 with the Honors discount
  • 640,000 points (160,000 nightly*4, the fifth night is free with Hilton)

That looks like a ton of points! But, Hilton will often sell you points at 0.5 cents each above board, so the $3,200 you’d pay out of pocket for those points is more than $2,400 savings over the cash price, and with better cancelation terms. Neat eh? You don’t need to buy points to top off an award redemption, you can buy points as a proxy award redemption.

It gets better though, if you’re buying points from a (churning) friend, rates are quite a bit better than the rates programs will sell them to you at, and you may get that same 640,000 Hilton points for $2,600 or less. Of course, there’s some sketch involved.

Tripping You Up

It’s not all roses though, sometimes there are road-blocks and speed-bumps. For example:

  • Some programs limit how many points you can buy
  • Gray market transactions are gray, unless you’re in the UK where they’re grey
  • Points aren’t always on sale
  • Award redemptions don’t earn points like cash bookings, so you’re forgoing a modest point-earning rebate

Good luck friends!

Next time: Debunking conventional “buy more and save wisdom”.

Today brings a special guest post from our resident clown, SideShowBob233, who has a rake to grind. Special thanks to SideShowBob233 for today’s post!

While there are some grifters out there who try to take private information for their own short lived personal gain (destroying both their standing and access to the community and also the death of the things they are selling), there are also some people who are addicted to imaginary internet points. While less of a toxic group than the grifters, they can result in the same death.

Imaginary internet points are the types of things you can get on places like reddit, where upvotes make the world go around. To be fair, before I learned how to dodge rakes I earned my share of imaginary internet points. I never knew enough in my reddit days to get a play killed (to my knowledge at least – and it helps me to forget things since I am an old clown who has taken 69 too many rakes to the face).

In smaller groups imaginary internet points are not calculated in upvotes, but in likes, thank yous, and other emojis. Often people share sensitive things are shared to show off their knowledge, or to make themselves seem important, or some are also just shared for no reason whatsoever that anyone with a degree from clown college can decipher. For whatever reason, the Joker has decided to hand out information via chosen randos instead of through direct means, resulting in a lot of these types of posts.

The result of handing out knowledge that isn’t widely shared is simple: death. So before you find yourself posting something that isn’t widely shared and also can’t tolerate a lot of volume, think about your motivation and whether your post will get it killed. And for the love of rakes, do not post in a way that makes people want to snoop around it and blow it up like a bathroom at a Home Depot. Remember loose lips sink ships, and those imaginary internet points don’t help you dodge a rake. IYKYK.

– SideShowBob233

Capital One Shopping helping you earn imaginary internet points

As churners scale, inevitably a FinTech, bank, quasi-casino gaming site, or Jamie Dimon (impersonator?) will call and ask exactly what you’re doing with their product and why you’re behaving the way you are.

When this happens, things usually go a lot better if you have a plausible answer already on-deck. A few suggestions:

Good luck and happy Monday!

Alternative excuse: I was trying to unlock all of the bank’s notification achievements.

Introduction

A few weeks ago in a drunken rage (reportedly), we talked about a series on risk in manufactured spend, because apparently sending $173,000 worth of gift cards to a guy named “Rob” that you met on Telegram deserves slightly more analysis than “he seems cool and stuff”.

Enter counterparty risk: the possibility that the person, company, or robotic-AI-cow on the other side of your transaction doesn’t do what they’re supposed to do. In manufactured spend that can mean:

  • A buyer doesn’t pay in part, or in full
  • A merchandise reseller “never received” your inventory
  • A liquidation partner’s accounts are frozen
  • Someone who paid you with a credit card disputes a transaction after
  • A company freezes withdrawals
  • Rob moves to Argentina, which I hear is popular right now

Each of these actually happens in the real world, though fortunately are somewhat rare. Need to beat a dead horse though? See The Plastic Merchant.

Reputation

The manufactured spend community has a surprisingly effective decentralized credit-rating system and we gave it a super unique, fancy name: reputation.

When people you trust have successfully exchanged millions of dollars with someone else (let’s call them a counterparty), that’s what we call in the business “useful information”. It’s certainly better than dealing with DefinitelyLegitBuyer420 whose references consist of his Canadian girlfriend and another Telegram account that was created Tuesday.

Unfortunately though, reputation tells you about past behavior, not future solvency. A reseller that successfully paid you $100,000 last month may still be unable to pay you $100,000 next month. Businesses fail, bank accounts get frozen, employees steal, payment processors shut accounts, fraud happens, and occasionally otherwise honest people decide that your money would look better in their couch.

I guess tl;dr: Reputation reduces counterparty risk, but reputable parties still can go pear shaped.

Exposure

Setting aside reputation, let’s take a hard body stance and reframe counterparty risk directly as exposure: Suppose that you’ve got a scheme with a broker where you’re paid back two Fridays after the broker receives your goods. Every week, you send the broker $20,000 in merchandise, and every two Fridays later, you get that back.

After seeing this work well for months, you decide to triple your volume, and a couple of weeks later, the broker delays payment from Friday until Monday because reasons. Well, congratulations, your 2*$20,000 counterparty risk quietly became 3*$20,000, and if you keep going, maybe it becomes 4*$20,000.

At that point, you need to decide, “Am I comfortable with making a bigger unsecured six-figure loan to Steve from discord?” Because that’s exactly what’s actually happening. This also leads to the now common refrain from whales in manufactured spend.

“Never float more than you can afford to lose.”

Controlling Risk

Ok, so what do we do about it? Simple friends, we manage it:

  1. Commit to an exposure limit: Decide how much money you’re willing to have outstanding with a counterparty, and reevaluate that periodically, knowing that you could lose it all
  2. Watch settlement time: A buyer paying reliably every two days is a different risk from the same buyer paying every two weeks, Faster settlement means less exposure over time, and speed bumps appear more quickly
  3. Scale slowly: A successful $2,000 transaction proves that someone can successfully complete … a $2,000 transaction. It doesn’t prove that they can successfully complete a $200,000 transaction #themoreyouknow
  4. Diversify: The likelihood of multiple brokers failing at the same time is quite a bit smaller than a single broker failing (duh)
  5. Look for speed bumps and react: Tuesday payments become Wednesday payments, then Friday payments, then bank issues, then supposed hospital stays, then something about being part of the next mission around the moon. Signs usually exist, watch for them
  6. KYC (sorry): A real name, business entity, address, phone number, mutual contacts, and some idea of how the operation actually works are all more useful than a Telegram avatar of a Lamborghini with a beer can in the driver’s seat

Finally, note that good counterparties generally communicate when something goes sideways. “ACH got held, here’s what happened, here’s the documentation, and here’s when I expect it to clear” is very different from silence followed by “sorry bro been busy”.

tl;dr

Counterparty risk can be managed, but let’s repeat the most important point because it’s easy to forget when the money is flowing:

“Never float more than you can afford to lose.”

Happy Thursday!

On the other hand, maybe Rob had a totally valid reason to go to Argentina on short notice, looks legit.

Introduction

The motivation for today’s post is ostensibly that the Bank of America Travel Rewards Visa has an increased $250 cash back or 25,000 points portal bonus when applying through Rakuten. That’s cool and all, but let’s talk about the darker side of maximizing credit card applications instead, because that’s funner.

Who Gets Paid?

When you apply for a credit card, there are generally up to three payouts from the bank after an approval:

  • Affiliate commission
  • Referral bonus
  • Sign-up bonus

It’s hard to get both a referral bonus and an affiliate commission on the same application, though gamers gonna game and it can be possible in certain cases. It’s also getting harder to get a referral bonus period (thanks Chase).

I think we have a good idea of how much sign-up bonuses and referral bonuses pay, but there’s a lack of transparency in affiliate link pay. It’s probably higher than you think though. Current payouts, for example, look like:

  • Low end: tens of dollars
  • Medium end: hundreds of dollars
  • High end: $1,000+

Yes, you read that right, there are high end cards that pay more than $1,000 in commission, and sometimes not even just a little more.

Maximizing Your Pay

Churners generally think of affiliate commission as something they’ll never earn, but it doesn’t have to be that way. The most obvious example is the one we led with: Rakuten effectively gives you a rebate on their commission. This is definitely the most public example, but seeking other affiliates may lead to much higher rebates on commission. Always be networking, and always be probing. Before anyone asks me, I refund 100% of the $0 affiliate I get for every credit card application, so 100% is the high bar to beat.

Good luck, and happy Wednesday!

A couple springs for a nice dinner with extra affiliate income.

A favorite past-time in the hobby seems to be to confuse the law with the terms and conditions of a card issuer, FinTech, website, bank, or other third party. So, let’s go over a couple of ironclad truths:

  • You can break the law and still be within the T&Cs
  • You can break the T&Cs and still be legal

To crib from Mike Ehrmantraut, I’ve known good churners who break the T&Cs, and I’ve known bad churners who comply with T&Cs. Something something about the law too.

Good luck out there!

I’ve also known churners that broke the banana bed terms and conditions.

Based on my personal observations from watching hordes of travelers stare at flight board delays and cancelations in abject horror yesterday, approximately 104.4% of travelers flying in the US had their flights either delayed or cancelled over the weekend. In no particular order, let’s talk about what a good travel hacker does when their flight is, err, impacted:

  • When your plane is delayed more than an hour, or when your captain tells you that they’re returning to the gate to “….” (it doesn’t matter what the “….” is, trust me), book a backup non-basic economy award flight on another carrier immediately. Why an award flight? So you can cancel it fee-free. If you don’t do it right away, inventory might be instantly gone when the cancellation is official. Why another carrier? You don’t want it cancelled as a double booking. Once you’ve done that, do it again on a third carrier if there’s an option.
  • Do three things simultaneously and immediately when a cancelation is official, and when one of them works you can cancel the other two:

    – Reach out to the airline on twitter X and ask to be rebooked
    – Call the customer service line and ask to be rebooked
    – Go to the airline lounge and ask to be rebooked

    Note that none of these are waiting in line at the gate or the customer service counter. Don’t do it, it’s not going to go well for a dozen reasons, not the least of which is the garlic burger from Carl’s Jr shoved in the person’s now-translucent-from-grease backpack in front of you.
  • If you have a forced overnight, don’t take the airline’s hotel voucher; in the best case it’s going to be at an airport Marriott Courtyard overlooking a dumpster and the room’s smoke detector will beep once every 42.5 minutes, but only when the lights are off. We’re not going to talk about the worst case.

    This is why you booked with a premium card for travel insurance, right? Let them pick up the hotel and your extra elite night credit too. Oh, and on that note, this will probably be a rare paid stay for you, so use up those FHR credits, Bilt stupid hotel credits, Citi hotel credits, etc. Don’t use points or a free night certificate though because you’ll have to fight with insurance about the value.
  • Meal vouchers often work on Starbucks, McDonald’s, and Chick-fil-A wallet loads, and if you want to cosplay a Paze churner, Dunkin too. You can do these from your FHR room too, no need to do it at the airport.
  • Sure, travel insurance will cover a replacement $3.94 tee-shirt from Walmart, but it’ll also cover a $39.40 shirt from American Eagle.

Good luck, and at least be thankful you didn’t have travel between TN and CO via TX and CA, that is, unless you wanted to because reasons. Have a nice Monday!

PS: Special thanks to everyone in Denver over the weekend (and the ones still stuck there today!)

Ok, maybe the beeping isn’t the most concerning part of that Courtyard smoke detector.