I just received a preapproved cash rewards Visa from Kroger Supermarkets and U.S. Bank. It is my 27th active credit card*. I surely do not need another credit card. But this one came with a sign-up bonus too easy to get, and no way for Kroger and U.S. Bank to make any money off my use of the card. So I have taken them up on their challenge and have no doubt I will beat them at their cashback card game. This one is going to be way too easy; but I can beat any credit card's cashback game. Here is what I mean.
Kroger hopes to hook me with a $75 bonus. I will get that signup reward if I charge $200 on their credit card in the first 30 days after it was issued. That amounts to 37.5% cash back on those $200. That charge requirement is just way too easy to meet and the payout is way too high. Kroger is throwing that money at me. But since it is not in business to throw money away, Kroger must certainly be working an angle to make money off me.
Kroger may expect to make money charging me interest. That is what every one of these cards hopes for: get their initial offer to hook you into using their card instead of any other, get you to carry and grow a balance on the card, and then to get their money back -- and then some -- by collecting a high interest rate. Of course, that is very easy for me to beat. I simply will not carry a balance on the Kroger card, just like I would not on any other card hoping to suck me in that way. But the Kroger card particularly has no hope here.
For Kroger to recover that $75 initial bonus at their card's base 14% interest rate, I would have to carry a $535 balance on the card for a year. But wait; this card comes with a zero percent interest rate for the first 15 months. So I would have to carry at least a $535 balance on the card for 27 months before Kroger could break even. That is really wishful thinking. And it is not going to happen.
Kroger may hope to make money on merchant fees. But at the average 1% fee that merchants pay on card transactions, Kroger will not recover its $75 until I have run $7500 in charges through its credit card. For me to do that, I would have to leave that Kroger Visa in my wallet as my preferred credit card for up to a year. That is not going to happen either.
Every 3 months, I load my wallet with the 2 or 3 rewards credit cards that are offering me the best cashback promotions for that quarter.** I make it a point not to be loyal to any card beyond the 3-month period when it is giving me the best cashback deal. After that period is over, the card comes out of my wallet. I do that with all my credit cards. So I will certainly do it with Kroger's.
Kroger may expect to make money selling me groceries. This angle is over and above what most other cashback cards can hope for. Overwhelmingly, cash reward cards have no direct connection to any brand of goods or chain of stores. The Kroger card does. But to earn that $75 initial bonus, I am not required to do any shopping at all at Kroger stores. I can meet the $200 charge requirement shopping anywhere Visa is accepted.
Kroger can count on pulling me into one of its grocery stores just one or two times. Because that $75 initial bonus comes in the form of a credit only usable at Kroger stores. That is fine with me. I drive by a Kroger store every week. And I will not mind doing my grocery shopping there the one or two times it will take for me to burn through the $75 bonus. But there is no chance that I will develop loyalty to Kroger stores and keep going back there unless that is where I can get my best deal on groceries. That happening is a long shot at best.
Any credit card can be beat at its cashback game. Just pay off its balance every month while you are working to meet its initial charge amount requirement, collect your signup bonus once you have met that requirement, and then take the card out of your wallet. That is what I will be doing with the Kroger Visa. And then maybe I will repeat the process with another credit card hoping to beat me at the cashback game.
* A Double Fistful of Credit Cards:
** Raking In Credit Card Cashback: