AmEx offers $300 to Cancel. Huh? – Episode #117

AmEx offers $300 to cancel your card

In the latest surprise default driven move, American Express has decided to launch a campaign to get people to cancel their AmEx cards.

Details:

• $300 gift card
• You had to be invited. Makes sense, they don’t want their profitable customers to cancel. You should have seen a 14 digit promotion RSVP code

Wow, how can AmEx make more money paying people to leave?

• What % of cardholders won’t payoff their balances by April 30th, and thus forefeit their opportunity for the $300 gift card. Let’s call it 5%.
• What % won’t remember the gift card is coming 4 weeks from now. Let’s call it 5%
• What % won’t use the card at all once received. Let’s call it 5%.
• What % of the cards unused balances will remain unused. Let’s call it 5%.
• Thus, only $244 will be invested per closed account. If the 5% rates above grow to 8%, the cost per closure will be $215.

Okay, how can they afford to spend even $215?

AmEx is calculating the cost of default on these accounts. Let’s say 30% of these accounts will default and the average loss is $1000, that means that AmEx loses $300 on average on these accounts. In this math, it’s better for them to spend $215 to get an account off the books, if it will cost them $300 anyway.

Note: all my numbers are speculation, but the logic makes sense. AmEx would only spend this money to close down accounts, if it thought it would lose more money later on.

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• Closing Credit Cards Hurts Credit Scores – Episode #78
• What’s So Rewarding About a Rewards Credit Card? – Episode #12
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