Hanged, Drawn, and Quartered: Signup Bonuses and the Fiscal Year

It’s an open secret: in the Miles & Points community, the lifeblood which suckles our hobby is the credit card signup bonus. While there are other methods of garnering large quantities of points, such as having a top-tier professional job that grants you excessive travel (and hard-partying) allowances or conducting large-scale purchases through online shopping portals, these are not the primary focus of most enthusiasts around here. 

And yet, when it comes down to it, we points collectors are still at the mercy of the great tides of the market, buffeted along by the currents of finance and ever-subservient to the whims of that most mercurial of goddesses: the financial quarter. 

“But Kirin,” you write with great annoyance at my metaphor, “what the heck are you trying to tell me?” Read on, dear subscriber, because we are going to explore just why the financial quarter is of such relevance to signup bonuses, and why it can explain the generalized welcome bonus massacre we’ve observed the past couple of months.

What Is the Financial Quarter?

According to the 1985 Federal-Provincial Fiscal Arrangements Act, in Canada the financial year “means the period beginning on April 1 in one year and ending on March 31 in the next year.”

As someone only gifted enough to graduate with a BA in History, I translate this to mean that rather than functioning with the calendar year, business and finance are run instead on a slightly different annual calculation going from the beginning April of one year to the end of March in the next. 

Therefore, financial quarters are broken down by where they fall within the fiscal year. As the name would imply, they each last three months: Quarter 1 lasts from April 1 to June 30, Quarter 2 from July 1 to September 30, Quarter 3 from October 1 to December 31, and Quarter 4 from January 1 to March 31.

But what does this mean for us Miles & Points collectors?

We are in the business of getting paid, even if that payment is only in points. We must be aware of these financial quarters because companies, governments, and financial institutions are required to provide quarterly reports detailing their earnings, expenditures, and revenue, and our signup bonuses, referrals, and retention offers are all numbers on their bottom line. Thus, we represent what is known as an operating cost within the grand scheme of these organizations.

The Role of Miles & Points in the Marketplace

Now here’s where it gets tricky: generally speaking, when banks or financial institutions are doing well, they want to incentivize you to use their cards. This gets them paid the interchange rate, which allows them to make money. They also hope that you’ll retain the card and spend money on it habitually, thus making them more money in the long term as the interchange they reap will outweigh the short-term welcome bonus.

The flip side to this is that these bonuses are just red lines of costs on the ledgers of these businesses. When times are bad – such as, to use a completely random example, during an enormous global pandemic wherein commercial activities come to a grinding halt – do you think businesses want to be paying out large bonuses? No!

That being said, when times are going from bad to good, or have gone from economic recession to economic boom, banks become more open-handed. Indeed, a paper from the Federal Reserve Bank of Chicago published in 2009 and updated in 2010 noted that banks were paying out even more in points and cash back than during the boom of the early 2000s. And this was only a few years after the Great Recession of 2007–2008. 

Similarly, a Wall Street Journal report from 2019 noted that this trend had only increased over the preceding decade, breeding a degree of credit card fever and loyalty into the general populace.

What I am trying to make clear, dear reader, is that things in the world of welcome bonuses are going to get worse before they get better. But with the Great Recession of ‘07–08 behind us, we can identify that the historical trend thus far in the wake of generalized meltdown is to see bonuses get bigger during periods of upswing to stimulate economic recovery by incentivizing consumption.

The previous paragraph is a fancy way of saying: “Credit card companies who are stingy now will want you to buy a lot more stuff later when their confidence in the economy has been restored. This means they’ll offer to give you points for days when things get better.”

So, What Are My Immediate Tasks?

As Miles & Points enthusiasts, we are at the whim of every financial quarter. If it looks like a quarter is about to be deep in the red for a given company, they will do everything in their power to try and cut their losses. We have seen various data points coming from across all over the Canadian landscape, so let’s go through them in brief:

• The American Express Platinum Card and Business Platinum Card saw their welcome bonuses devalued by roughly 45% in May 2020

• TD welcome bonuses were cut by a full 50% in May 2020

• Scotiabank has numerous data points of refusing any additional credit if they determine that an applicant has any significant other sources of credit, so as to minimize their loss

• CIBC bonuses as of June 2020 have likewise been cut by around 45%

• RBC has pulled the special offers on their Avion Visa Infinite, and there are numerous data points over the past quarter of much stricter approval criteria compared to before

(The HSBC World Elite and WestJet RBC World Elite have been a few rare exceptions, opting to keep their bonuses elevated throughout the summer to distinguish themselves from their cost-cutting peers left and right.)

To my eye, which is that of an interested amateur but not of a financial expert, this looks very much like companies trying to reduce expenses. Sadly, I do expect for things to get worse before they get better, especially if the effects of economic recession are long-lasting.

This means that for the upcoming quarter-end dates, which are when the bonuses for each type of credit card are released, we ought to reasonably expect either sustained low levels of welcome bonuses or even further devaluations.

But don’t be despondent, for I feel there is a glimmer of hope. As said above, during economic recoveries, banks are likely to act more open-handedly with their rewards to try and get you to buy more stuff with their products.

Moreover, the mentality of all of us in the Miles & Points community should not be one of hopelessness; indeed, when we see a ten-foot wall, we should be finding a shovel or an eleven-foot ladder by which to bypass it.

The immediate tasks all of us can and should have is to get the best deals possible, without waiting too long. As quarters get worse, bonuses will go down, so don’t dilly-dally about signing up if you’re eager for a certain offer (such as the aforementioned HSBC or WestJet holdouts). 

In these times, there’s one more thing to be aware of: your available-credit-to-income ratio. Many lenders are now rejecting applicants with lots of income, assets, and reserve funds because they are deemed to have too much credit. 

In other words, creditors are afraid that even some great potential clients might just “take the money and run”. When you’re applying for cards during the foreseeable future, always be cognizant of how much credit is available to you and maybe consider closing cards sitting in your drawer (or reducing the limits on them) if there’s a bonus you’re very attracted to.

Account Shutdowns: A Medieval Form of Execution

The title of this article is “Hanged, Drawn, and Quartered” for a reason. Now I won’t spell out exactly what that is for you, but suffice to say it was a horrendous medieval form of execution reserved for crimes such as high treason.

If you have ever seen the excellent (but wholly inaccurate) film Braveheart, then let me say that a version of this punishment was what Mel Gibson’s William Wallace had to endure in the final scene. Yikes.

And so we get to the crux of the matter: in April 2020, American Express had to release its most recent quarterly earnings report.

Remember, businesses report by the quarter, and their literal job is to return profits to their shareholders. And what, pray tell, kind of earning did American Express have to report?

A 76% year-on-year drop in profits.

That must have hurt. And so it comes as no surprise to me that immediately prior to this, some American Express cardholders had their accounts shut down because of usage of their card “for unintended purposes” – generally understood to be behaviour that’s unprofitable to American Express.

I can only speculate as to the timing, but I personally imagine the upcoming quarterly report had an enormous role to play.

Executives and accountants at Amex could see how much money some cardholders were losing them, and in the context of the COVID-19 pandemic, they opted to minimize their risk by declining to do continued business with select individuals in order to at least stanch some of the monetary hemorrhaging. 

There are also scattered reports of shutdowns continuing through the current quarter. I can only imagine that the analysts at American Express can see how much they are set to lose even prior to the next quarter’s results being published, and so are engaged in removing additional dead weight from their balance sheets. 

Conclusion

Adam Smith may have been onto something when he first coined the term of the invisible hand of the market guiding our actions. In the Miles & Points landscape, especially in the context of the current pandemic, I feel that it is the invisible hand of the quarterly earnings report that dictates our accumulation strategies. 

Things may be at a low point for the moment, but it is unlikely they will remain that way forever. If we can keep clear sight of the fact that bonuses come out each quarter, we can be on the lookout for the best options available and use our ever-valuable credit pulls and total available credit to strategically get the best products for our own travel goals.

Until next time, stay safe and may the odds be forever in your favour.