Welcome to another special edition of Shop Talk where we write out a “podcast on paper”. This is the kind of “Shop Talk” many of you are engaged in on a daily basis, so feel free to discuss with us in the comments section.
Robert: This week we have Free-quent Flyer joining us to discuss Dead Deals.
I want to discuss Dead Deals in hopes of taking each of our skill sets up a notch in terms of spotting deals and scaling them to maximize profits. Specifically I’d like to gets each of your thoughts on the characteristics present in dead deals and finding similar deals in the future – because deals always die.
For this exercise I’ll briefly describe a few famous dead deals then I’ll ask you to elaborate on the characteristics of the deal that made it possible and what you learned from it, and how you’d seek to replace it with a future similar deal.
Dead Deal #1: Vanilla Reloads
The deal: You could buy $500 “reload” cards at office supply/drug stores with a credit card. These reload cards could be use to add money to a variety of prepaid cards (most notably Bluebird) which in turn could be used to pay bills online (including mortgages and even credit card balances).
Robert: I really thought [hoped?] that once CVS stopped selling VRs that other options would pop up. Either another prominent nationwide retailer would step up, or GreenDot MoneyPak/Reloadits would become more widely available. But none of those seemed to have materialized.
Is the reload game completely dead at this point? What have we learned from this one?
FQF: This is the deal that really got me hooked on the game, since I was able to buy VR’s at both CVS and a local gas station chain in New England, so when the Citi ThankYou Preferred, “old” Blue Cash, and Wells Fargo Rewards credit cards had unlimited 5% cash back at drug stores and gas stations, I was sitting pretty. VR’s were so lucrative that they got me to step outside my comfort zone (something I’m still not great at doing), and beyond Bluebird I signed up for all sorts of marginal products like Netspend, Momentum, etc.
That experience meant I was prepared when VR died, and I was able to pivot to products like Reloadit and got quite a lot of mileage from that as well. One lesson here is that there’s often a “standard” version of a deal, like loading Bluebird or Serve with VR’s, that people stick to without realizing other versions might be a little more cumbersome or expensive but well worth pursuing. A good example is when a store like Office Depot ran a promotion for negative-cost gift cards but no longer allowed credit cards to be used for variable-load cards. If you’re focused on the fact that you can’t earn 5x UR with Ink, you miss the fact that you can buy money below face value!
Sam: I like FQF’s pivot discussion, having one foot in a near dead deal and another in a barely alive one is a nice way to transition to something new.
Personally, I never liked VR, I think I was pretty vocal about that fact. For me the issue was one of scale. I also thought that people got pretty lazy about these, picking the lowest hanging fruit only. In reading FQF’s write-up above about them maybe it was I who was too lazy and didn’t look around for enough places to dump them.
Regarding Robert’s point above about these seeming to have died, I think these reload products got destroyed with AML/Compliance type issues. The game we play and the game someone who wanted to wash $1MM of dirty money plays are indistinguishable from each other at the macro level. (Sidenote: don’t watch Ozarks on Netflix, you’ll start to scream at the Jason Bateman that he’s doing it all wrong).
I enjoyed speaking with many people at InComm about the massive number of these I refunded. That’s an angle I think is still interesting to this day. There’s got to be an escape hatch of sorts for all of these cards. The newest Terms and Conditions page from GCM is so massive it fills an 11×17” sheet of paper, two sided. If you get one as a gift do you instantly agree to those terms? What if you don’t? Can you call up and say, “I have this $500 piece of plastic, I don’t agree with the terms, I did not agree with those terms when it was given to me.” And if you do that will they send you a check? All of my experiences with doing something like that point to yet. While it doesn’t scale a ton it could be an escape hatch if things go south on a product you’re overextended on.
Dead Deal #2: Evolve Money
The deal: You could pay bills online with debit cards fee-free, including Visa Gift Cards. So you could buy Visa Gift Cards at stores which heavily rewarded credit card spend and liquidate them for free online.
FQF: This was the first deal I really took ownership of in the early years of my blog, and when Evolve first launched all debit payments were free which made it easy to experiment with different payees. One of the coolest options was 529 college savings accounts, which allow you to make tax-free withdrawals of your contributions at any time, turning Evolve into a fee-free liquidation technique, until you ran into Bill.
A lot of the lessons we learned early on from Evolve have paid off every time a new bill payment service is launched, for example, bank accounts, brokerage accounts, insurance payments, and utility bills are all liquidation options that are alive and well, and always worth looking for whenever a new bill payment service is launched (until PayPal kills it).
Sam: I didn’t even bother with Evolve Money, at the time I was working the GW & Chargesmart(Tio.com) angles, and the ‘whack-a-mole’ type stuff really seemed to not be worth my time. I also…loosely remember a 6-9 month period of time where I got almost zero sleep. Beyond being tired, it was painful, it caused me to miss a lot during the early parts of 2015.
To me the most interesting part of these payment companies are the AML/Compliance departments. Like FQF I’ve had my fair share of calls with these guys/gals. In all of those instances I make sure to tell them exactly why I’m doing what I’m doing. There’s no benefit to trying to be ‘cute,’ and spin a tall tale. You’re churning because it makes you miles. Period. They’ll either be ok with that, or they won’t.
FQF’s interaction with Bill illustrated the second side of this, the Compliance issues. There are people who’s entire job is to make sense of what they’re seeing that seems out of place. They can’t just let it go. Their response is binary–they either tell you you have to knock it off, or they’ll tell you how they can allow you to continue. (Chargesmart took the latter path, almost everyone else, Evolve included takes the former)
The thing about these payment services is that they’re not going to disappear. The allure of the hundreds of billions of dollars in legitimate payments is too much for startups to pass on. Unfortunately there’s a large enough group of us now that we cause a noticeable ‘blip’ for the compliance depts. I wish more of them would set up a fenced in playpen for people like us…
I think the enduring legacy of all of these programs is the lesson they’ve taught me about having personal control over a very liquid ‘bridge loan’ of sorts. This might be a HELOC if you own your home, or a PLOC. We’re in the manufacturing business–and what all good manufacturing businesses need is the ability to inject capital and debt into the ‘company’ at the right times.
A very tight loop would be to use your CC’s as a manufacturing line, creating miles and cash. You’d pay the CC’s off with your credit lines as a bridge loan, and then use a bill pay service to close out the loan. Yes you’d pay a small amount of interest for this. No, all debt is not bad debt.
Robert: I ran into Bill too. I was using Evolve Money to fund my kids’ 529 plans. Seemed totally on the up and up to me, but when I Ieft a comment on a blog saying so he tracked me down telling me he didn’t appreciate it (the comment, nor the use of Evolve to fund 529 plans). That was creepy.
Like I shared in my Hopes & Fears for 2018 post I really want there to be a low-fee way of paying real bills with debit cards (VGCs/MCGCs included) because I’ve got enough of those that it’s useful to me, and a good bill pay service should be able to set a price that works for both sides.
The promotion Plastiq announced yesterday is great but I fear it’s so generous it’ll be cancelled soon. But who knows what kind of deal they might have with Masterpass?At any rate, once this promo ends, it would be great for Plastiq to settle on a reasonable fee for debit-based online bill pay. That would be useful to me long-term, and totally within bounds of compliance (if you ask me).
Dead Deal #3: Buy Visa or AmEx Gift Cards Online for cashback through a shopping portal
The deal: You used to be able to get cashback through shopping portals when buying VGCs and AmEx GCs online. The cashback more than covered the activation fees on the cards so this was a nice angle if you had low-fee liquidation mechanisms in place.
Sam: These are the deals that you just knew couldn’t last. I can’t imagine anyone is making money on these. The cost to process a credit card on a $500 transaction has to be a minimum of $10. When the portal cashback is over that it really starts to make no sense. I know people in other countries probably read about these things and think we live in the upside-down. (Second Netflix reference, #notsponsored)
The Amex Gift Cards->VGC deal was the first deal that really got me going beyond my comfort level. Up to that point I would only really hold what I knew I could use a reasonable amount of time in my regular spending and repay with savings. Anything that was directly a cash equivalent of course was no problem. But the idea of buying thousands and thousands of dollars of American Express Gift Cards which could not be deposited in a bank should have raised red flags.
By That time there were so many great second options to liquidate that getting ‘stuck’ with $20k in Amex GC wasn’t really anything to worry about. So the reason I was able to scale way up wasn’t that the deal made sense, but that the liquidation was near guaranteed, even if the current method died (it did).
Fast forward to a day like today and the great second or third option to liquidate is really…not here. But the risk tolerance that the Amex GC deal trained into me allowed me to spend in excess of multiple times my monthly real spending.
I bring this up because I think [today] for some people there’s currently a real danger in doing this without a safety net. The landscape has changed significantly from years ago to today. And if you’re starting out today there’s a very real risk you could get caught holding the bag.
Robert: The buy side of this one was good, but what really killed the deal for me was TIO.com dying (speaking of dead deals).
Liquidation is such a key component of this game and being able to pay bills (even credit card bills) via a debit card with a 1.75% fee, quickly and easily online with scale, made for a deal of tremendous Net Present Value.
That said the pattern here, buying discounted Visa/AmEx gift cards online then liquidating them with enough spread to make it profitable, is largely replicated in 3rd party gift card reselling. The players, risks, and especially scale are just different.
FQF: I was an Amex gift card enthusiast for a long time, even speculating at one point that perhaps all manufactured spend should go through Amex gift cards, although my volume never got anywhere near the numbers real heavy hitters achieved. Of course, when the deal started Amazon Payments was still a free method of liquidating $1,000 per month, per Amazon account, which provided a kind of emergency release valve (until it didn’t).
Having experience with the Amex gift card two-step meant that when Five Back Visa gift cards came out and awarded 5% cash back at merchants like CVS, Staples, and Bed Bath and Beyond, I already had a grip on the idea of converting one kind of gift card to another and hit the ground running with that deal. That’s one reason why I think it’s worth at least familiarizing yourself with as many deals as possible, even if you don’t hit them very hard; it prepares you to fit the pieces together when another opportunity comes along that might turn an unattractive opportunity into the deal of the century, like registering Five Back cards for in-store cash back through Ebates, an opportunity I shared with my blog subscribers at the time.
Ultimately, a high enough payout makes even expensive opportunities worth pursuing, and if the payoff is too low, it may make sense to pass up even cheap opportunities to manufacture spend.