Rewards Program Lessons from Perkstreet Financial Shutdown

Perkstreet Financial started in 2010 as a plucky internet bank start-up that told us credit cards were dangerous and unethical, and you should use a trusty debit card instead. They offered attractive features like 2% cash back on all purchases and 5% cash back on special categories. But then new laws were enacted that limited debit card merchant fees, and Perkstreet took a hit to their main revenue source. On August 12th, they announced that they were shutting down. Oh, and all that cash back “Perks” that their customers earned? Gone with zero prior notice. *Poof*

Consistent with the terms of our Rewards Program Agreement, we have discontinued our perks program and cancelled all perks balances as of today, August 12, 2013.

Consistent with what terms? Wait, I thought you said you were trustworthy? They meant this part:

The Rewards Program and its benefits are offered at our sole discretion. We reserve the right to cancel, terminate, change or temporarily suspend the Rewards Program and to amend this agreement at any time without notice.

Translation: We can do whatever the %(#& we want. But you can’t.

I never had an account with Perkstreet and didn’t lose anything, but many people did. This is a good opportunity to talk about rewards programs in general. Some thoughts:

Businesses never actually plan to pay out all of their rewards. Airlines know that a huge chunk of the frequent flier miles they give out won’t ever be redeemed. There will always be points lost, forgotten, or expired. With any rewards/points/miles/cashback program, always be on the lookout for expiration dates, tiers, limits, restrictions, and minimum redemption requirements that make them just a little bit more difficult to redeem.

Rewards can disappear or get devalued overnight, so avoid certain risk factors. As for that “we can do whatever want, whenever we want” clause, you’ll find something similar with nearly every rewards program out there. To counter this, I would consider three things: profitability, reputation, and constant redemption.

Is the program profitable? The main reason that airline miles usually don’t disappear with bankruptcy is they are an ongoing source of profit for the company and they want to keep us collecting them. Perkstreet’s cash back program stopped being profitable after the debit card fee cuts, and in hindsight many people should have left then. If your rewards are essentially funded by venture capital, I’d definitely be wary. My blog archives are littered with start-ups that gave out nice promos and flamed out. I must have gotten 20 iPods over the years.

Is their reputation valuable enough? I have well over 100,000 Chase Ultimate Rewards points, but I don’t really worry about them because Chase’s reputation is (at least currently) more important than the outstanding value of the points. Chase (JPM) is publicly traded and worth over $200 billion dollars (making them still Too Big To Fail). They might erase some liabilities if they nuked all their points, but in the big picture they’d lose a lot of money by hurting their reputation. Same for American Express. But Perkstreet was a private, unprofitable company that couldn’t even be sold off.

Even if the program is profitable and the company values its reputation, what can still happen is a gradual devaluation that slowly eats away at the value. Airline miles are notorious for this. For cash rewards, redeem the second you’ve reached the minimum cash-out amount. For points/miles, save up for a specific goal, and then spend them.

Even with these potential pitfalls, I still participate in many rewards programs. But I choose them carefully, redeem my points regularly, and am willing to put it some work to maximize their value. I view it as a profitable hobby, putting the cash earned towards retirement and “investing” the points/miles in awesome trips (Paris, Thailand, Peru) that create lasting memories.

Comments

  1. If you don’t mind sharing, what’s your rationale for saving 100,000 points with chase? I likewise wouldn’t be worried about chase cancelling them, still they are slowly being inflated away.

  2. Wow you got me thinking now.
    I too have a high number of points sitting with chase although chase probably won’t disappear they can change policy. for example they could say you can only use your points to buy merchandise from them only and won’t no longer allow to redeem in points for cash. I have just ask myself what is the rationale for keeping that many points with them. I don’t buy their overprice rewards merchandise. I only use my points for cash. I think in my case it’s being lazy. I will look into cashing in my rewards card and online cash back programs and putting the cash in the bank and or investments.

  3. I did have Perkstreet at one time, but got rid of them after realizing that it was costing my 10% just to get cash deposited into my account. I needed $22 to get $20 into my account. With their changes that they made to the rewards program midway through and basically a 10% fee to get my rewards I knew it was time to go somewhere else.

  4. TD Bank is doing away with their Visa Rewards program as of Sept. 2013. At least they gave notice!

  5. I always cash in at the minimum threshold for cash value points (Chase sapphire/Chase Freedom for me).

    I don’t even look at the airline miles because I had unfortunately once lost 90,000 points on united (previous job had plenty of air travel) because I didn’t use united for three years (change of job…Should have taken that vacation!). Since then, I just don’t want to deal with rules and devaluations of mileage awards cards.

  6. I too always cash my Ultimate Rewards as often as I hit the minimum threshold. I see no reason to let Chase hold on to them.

  7. @Kevin –
    If you have one of the premium credit cards (Chase Sapphire Preferred, Ink Bold/Plus) then chase points can be worth more than $.01

    Chase points are worth 1.25 cents if redeemed for travel and booked through the Ultimate Rewards portal.

    You can also transfer directly to a number of partners, both Hotel (Hyatt, Marriott, IHG) and Airline (United, Southwest, BA, Korean Air). The transfers are where it gets tricky, but potentially lucrative.

    For example: Say you want to travel last minute business class from US to Europe. On United, that is 90,000 points ($900 in Chase rewards), but depending on where you are going to/from that could easily be a $3000-$6000 ticket.
    Or, if you want to stay in a really nice hotel in downtown Paris. The Hyatt Vendome is frequently $1000 per night, but by transferring Hyatt points you can have it for just 22,000 points ($220).

    So, it is really helpful to have a big bank of points at Chase for whenever your travel plans come together. Personally I’m saving up for a trip for two to Europe (2×90000 points for RT on United + 7*22000 points for a top Hyatt). So in total that’s just over 330K Chase points I’m saving up (almost there!). Yes, that’s $3000 in cash, but it’s probably about $10K-15K if I were to pay cash for flight + hotel.

  8. Ultimate Rewards points are flexible (kind of like Starwood but in my opinion a tiny bit less valuable but useful in different ways that Starwood isn’t, they complement each other). James lists a lot of the benefits above, and I like his plan for Europe. :) Here’s my quick version:

    You can always convert the 1:1 to cash, but with a Sapphire Preferred or Ink Bold you can use the for 25% more towards any travel booking. $400 of points = $500 of travel. I consider this my baseline minimum value.

    You can transfer your points to/from anyone (spouse, mom, dad) without any fee and instantly. Some people use this feature to sell their points on 3rd party brokers like Rewards2Cash.com for 1.33 cents per dollar but that is technically against the terms and they can cancel your points if they catch you.

    They are also convertible 1:1 to United and British Airways, which I can get 2 cents/$1 or better value at times. I can’t get United Miles on demand from Starwood points. You can also get a variety of other programs’ points like Hyatt and Marriott. If you travel for work, you can synchronize and rack up the points.

    Basically, I get value and flexibility by keeping them as Ultimate Rewards points. I would earn and burn faster, but with a 1-year old I haven’t been traveling very much. Hopefully will use them up for something fun soon :)

  9. Hmm… a paragraph disappeared above, I must have copied/pasted over it.

    Chase is trying to make Ultimate Rewards on the level of American Express Membership Rewards (I would rather have UR right now than MR so they are doing well there), so at least for the foreseeable future I am thinking they’ll keep their value. But as always you have to keep an eye on things.

    I tend to like Chase points and Starwood points over miles because they can be converted to miles when needed and I’m not super-loyal to any airline.

  10. Perkstreet shut down entirely. I’d think if an airline or bank shut down entirely then their points based rewards would likely also become worthless. Generally though banks and airlines don’t simply shut down but instead are bought out or go through restructuring and continue operating. If they continue operating or are bought then they continue to exist and its likely in their interest to continue their rewards programs. I think theres always some risk that a company will shut its doors abruptly but that risk varies based on the company.

  11. A couple of months ago, Perkstreet gave me a big runaround when they erroneously accepted my “multi-party” check I had received bearing my name and mortgage company’s name towards roof damage claim. It was such a bad experience that I immediately decided to close my Perkstreet account once the situation was resolved. I redeemed all my perks just last week and closed my account last Thursday. I saw their closing announcement on Monday. I’m now a very happy camper with my new account at my local credit union. But, I feel very sad for people had not had any opportunity to redeem their perks. They should have given notices to redeem by certain date etc. But, after this experience, I’m a skeptical person with online banks for now. Unless some big-names stand behind like Amazon etc.

    I documented my whole ordeal on a blog post here: http://www.buyandholdblog.com/perkstreet-financial-bank-review/

  12. @jim – I believe that some airlines in the past have gone through bankruptcy and their members lost their miles while the airline itself continued on, but they were smaller airlines. Believe the name was Midway. I don’t know of any “major” airline that has nuked their miles program.

  13. Perkstreet was a major sponsor of the Dave Ramsey show and Ramsey was always pushing their bank to his listeners. I wonder if he addressed this on his show.

  14. @Josh: Yep! You can read about Dave Ramsey’s comments on PerkStreet closing at: http://www.bizjournals.com/boston/blog/startups/2013/08/dave-ramsey-perkstreet-slimeballs.html

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