The dodginess of reward point systems

There’s no such thing as a free lunch, as they say. And reward card systems are no exception.

I can’t speak to all of them everywhere, but can say with confidence that broadly speaking, if you’re seemingly getting something for nothing — i.e. if a bank or grocery store chain offers you free points if you join their reward point system and use a card or scan a code with your purchases — it’s certain that you doing so is making more money for them than you’re earning/saving.

How?
By them selling your growing profile to companies interested in advertising to you. This is from the playbook of what made the likes of Facebook the financial juggernaut that it is: You sign up on FB to connect with family and friends and people with common interests, and the whole time its background algorithm coding is watching every user very closely for everything they do, down to many data points collected in fractions of every second, to keep compiling extremely detailed data on everyone. Which Facebook then packages in myriad ways and sells to companies looking to advertise to even very specific profiles of its users.

Reward point systems can do much the same thing, if on a more shallow level of just your shopping and buying habits.

If you go shopping and pay for your order and leave, there’s not a ton that can be done to sell anyone that info: A person bought these items. But if you go shopping and scan your reward card and pay and leave, well now they know specifically who bought specifically what. They can pair you with those items to create a profile of who you are. Repeated use builds up that profile for each reward point member. That profile information can then be packaged by the likes of grocery stores and sold to, for instance, brands you often buy, or to producers of categories of items you buy, who then know that you specifically buy that particular items with X frequency, and thus, that you may be interested in this other item they sell. Or on a larger scale with more profile data of more reward point users, would know if your region would be a prime target for sales of certain items to boost sales.
So yes, you’ll get reward points for belonging to that, for instance, grocery store chain’s point system. But what they give you in exchange doesn’t come near the amount they’re making on the side by being able to sell data about you to third parties.

People sometimes overlook the power of third parties knowing what their actions and purchases are. And while you, as one person, may not be worth much to anyone, that data collected about a lot of you — hundreds of thousands, or millions or (like Facebook) billions of users — is extremely valuable these days. I’ve mentioned in the past that Facebook alone earns more money yearly than all of Canada’s banks combined. And all they’re selling is very packages of very detailed data of its users to advertisers.

Even on far smaller scales than Facebook, some of this background data collecting and selling has gotten companies into trouble. In the last few years, Tim Hortons was discovered to have set their phone apps — recommended as the go-to option for using their reward points — to track users’ movements and locations even when the app wasn’t running. That’s a huge privacy infraction that they frankly got a slap on the wrist over: Literally the legal fine was to give every app user a free drink and donut of their choice. Other reward point systems have been demonstrated to just be playing dirty with what can be earned with their points. AirMiles, perhaps the best-known stand-alone reward point organization, was proven to be pulling a classic bait-and-switch scheme: It would show users online what kind of tempting items could be purchased on the next tier of reward points, only to have those items disappear completely and become unavailable once the users achieved that next level… but then showing them what even more tempting things they could get on their next level…

I’d already canceled my AirMiles subscription before that, as their points seemed to add up painfully slowly (I couldn’t get anything of interest after using the card everywhere I could for over a decade). But if I’d still hair an AirMiles card when that story broke, I would’ve cut it in half on the spot and never looked back.

Having said all that, yes, I do belong to a few reward card operations. I know my data is being sold in the background and that it’s not just out of generosity that they’re giving me these points I can then use on, say, more groceries. But like for so many, the appeal of some help with grocery or entertainment or travel costs is, at least here and now, an attractive trade-off.

One of the reward cards we have is a Royal Bank Avion credit card. I don’t mind naming them because it’s not like the bank or Avion is a big secret, and our experience with it is what our experience with it is.

Here’s the thing: We paid for a lot of our recent home reno on the Avion card. Specifically to ramp up the reward points. Like many “travel reward” card systems, you accrue points that you’re then supposed to be able to use to pay for, or reduce, the cost of traveling.

But we’ve recently wanted to travel to Florida to visit friends. And so we went through the Avion system to see what we could find for flights. And what you find when you try to do so is that a) you’ll use up a ton of your collected points, but also have to pay oddly high amounts beyond that, and b) your options for flights and times are going to be more limited than what you would find elsewhere.

The “A” part of those two items is always frustrating: You can “buy” this seat for 35,000 of your Avion points. And, like, $179 dollars. Or $281 dollars for maybe a more appealing flight time, or — and my wife and I saw this just two days ago — $1700 more. Yes, we saw one ticket option, flying from Toronto to Florida and back again, with decent but common flight times, that was 35,000 Avion points plus over $1700 in cash. Per ticket. All of these options were for flights on everyday airlines, and were flying Economy class. I’ve no idea what the extra $1700 was supposed to cover. Maybe you’re in a seat made of gold? Personal chef on the flights? No clue.
But the point here is, the whole raison d’être of a travel point reward system is to (ideally) cover or (at least) off-set the cost of the flight. It feels bizarre to be using up reward points plus then also paying hundreds of dollars more anyway for a ticket. Particularly when there are flights that can be found that are as little or less than the added cost of those Avion-based tickets.

Which gets to the “B” part of those points above: Your options being more limited going through Avion than they would be otherwise. Booking through Avion will, by its very nature, reduce the number of flight options you have to fly with. This is not only readily demonstrable, but is understood by them to be the case. When we were recently looking at Avion options, they were quite limited in scope of what times we could fly to and back from Florida, on which airlines, and for what added incurred cost beyond just the cost in Avion points.
We went to a couple of different travel purchase aggregators — Kayak and FlightHub — and on both of them, we not only found other flight options on airlines Avion didn’t list, but found that on some of those airlines, just buying the tickets outright ourselves was cheaper than the additional cost to the tickets we’d be spending Avion points on as well. Meaning, as an example with some fudged numbers but to drive home the point, we could book tickets on Airline X through Avion for 35,000 and $281 each, for a return trip. Or we could go to, say, FlightHub, and book return tickets on Airline Y for just $278 each. No reward points spent and literally less money to pay beyond those points.
Which of course leads one to ask why use the Avion system at all. To which I’d reply: They probably do cut the cost of those specific flights and airlines and times they list. We didn’t spend enough time doing a head-to-head on seeing if we could find the exact same airline and flight time on the third party sites as we did on Avion to be able to directly compare apples to apples. But I can say with 100% certainty that you can find the flights you want, at times you can work with, for less than you would if you stuck entirely to the Avion booking system.

And, as I said earlier, Avion knows that. Because here’s something we discovered last time we flew using their point system: If you find tickets on an airline’s own website — not a third-party aggregator like Kayak or FlightHub, but directly from the airline — that Avion doesn’t offer an option to buy, you can run the details by them and they may let you use a conversion of Avion points (100 points = $1) to cover the cost of that flight. So let’s say you find tickets on Airline Z that Avion doesn’t have on their booking system, and it’s for $300 per two-way ticket. If you show them they don’t have that option on the Avion booking system, they will let you pay for that ticket with Avion points (so, a $300 ticket found elsewhere would be 30,000 Avion points). So there’s a bit of a dance involved, needing to find tickets you like, ensure they’re still available, run the flight info by Avion to get the green light on covering that cost with your points, then going back and booking them, then sending the purchasing info to Avion to get compensated for it… but it’s good to know that the option, while not publicized or mentioned anywhere that we saw, is at least there.

Now, is that still worth it in the long run? Did we accrue so many Avion points through our home reno that even the 100 points = $1 on third-party flight booking is a good deal to have been using their credit card in the first place, instead of just using a standard credit card and buying tickets when we wanted tickets? We haven’t examined it, but suffice to say I’d be shocked if it were a good deal in that respect. Like any other company, banks are in business to make money, not give it away. So I would bet a lot that not only are they of course making money on us using the credit card, but are “giving” us as little as possible on the Avion system that they can manage while still making it seem like an appealing option for credit card users.

All of which is to say: Be very leery of any company offering you reward points, because you can bet your ass that they’re making more from it than you’ll be getting from it. On the flipside, if you go in with eyes open and understand all of that and still want to make that trade and use the reward system, more power to you. At least here and now, in some cases, I still do. But I’m looking at them and weighing those options, that trade-off, more critically than ever. And you should, too.