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I use my credit cards to earn points and miles so that my family can travel around the world. When we visit family and friends overseas, they wonder how we can afford all of our travel and they are confused when I explain that we have so many credit card rewards. Eventually, I learned that Americans are fortunate enough to enjoy the most generous credit card rewards, while the rest of the world has so few.
Why Americans Have so Many Points and Miles
While the Middle East is awash in oil and Africa is the source of diamonds and other rare minerals, it is almost as if there is a giant mine in the center of the United States where all the points and miles come from. Rather than being a natural resource, points and miles are offered by banks and other credit card issuers. They do so because credit cards are consistently one of their most profitable products, in good times and in bad. When profits are strong, the market becomes so competitive that card issuers compete to offer the best rewards to attract and retain customers.
But what is it about the American credit card market that is different from other countries? In America, credit card payment networks charge merchants transaction fees of between 2% and 4%, and in most cases, merchants can't add a surcharge to cover the cost of this transaction. So you can think of your credit card rewards as a partial rebate of this merchant surcharge.
In contrast, other countries that highly regulate these merchant fees have seen credit card issuers drastically reduce the rewards offered to customers. For example, it is not uncommon for a foreign credit card to offer one point for every several dollars spent (or equivalent local currency), while American cardholders can sometimes earn several points per dollar spent.
There is no doubt that most retailers oppose the current system where merchant fees consume 2% – 4% of their gross sales when customers pay with a credit card, and a much larger percentage of their profits. Nevertheless, every business that accepts credit cards chooses to do so and can decline credit cards if they feel the cost of doing so outweighs the benefits.
Beyond the issue of merchant fees, American businesses know that their loyalty programs are very profitable by themselves and they have conditioned American consumers to expect rewards from their interactions with their company and its partners. In the United States, we can earn points and miles for test driving a car, getting an insurance quote, refinancing our house, or just about anything else. In other countries, loyalty programs tend to be focused just on travel providers such as airlines and hotels.
The Downside of all These Points and Miles
I have a family member who lives in Atlanta who collects Delta miles from so many sources that she often jokes; "If you breathe in this town, they give you Delta SkyMiles for doing so." With so many points and miles being handed out all the time, what could go wrong? As with any currency, if too much of it is printed, it rapidly loses its value. For instance, Delta is notorious for devaluing its miles by frequently increasing the number of miles needed for an award flight, and making award seats extremely scarce.
Actually, the major airlines appear to be handing out more miles, but without making any more award seats available on flights within America, or flights to and from America, than they do in other parts of the world.
The result is that it can be extremely difficult to use airline miles for domestic flights and for trips between America and other countries. At the same time, the further you travel from the United States, the easier it is to find great ways to use your miles. For example, award flights between Atlanta and Denver can be very hard to find, but award seats between Paris and Istanbul are plentiful.
So earn all the points and miles you can, it is the American way after all, but once you have a nice stash of rewards, it will help to develop a taste for exotic destinations as those are often the only places you can easily spend your rewards.
*Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.