There’s a sense of comfort when your credit card works exactly the same way each time you use it. If it claims to earn 3% cash back at restaurants, that’s what you’ll earn. If you can redeem travel rewards at a value of one cent each, then 50,000 points is worth $500.
Traditional cards use gamification, where they apply game-like mechanics to spending, to nudge behavior in specific ways.
Sign-up offers are one example: spend a lot on the card in a short period of time and you’ll get a five-figure point bonus. The original Bilt credit card required five transactions per month to earn points on rent payments (this led to a lot of purchases of individual bananas to meet the requirement). Still, these kinds of rewards are fairly straightforward: complete a certain action, get a certain prize. You know what you’re getting if you play the game.
Up-and-coming cards created by financial technology companies are relying on uncertainty to capture users’ attention and appeal to a generation of tech-savvy consumers seeking alternatives to traditional banks. For companies such as Coverd and Tuyo, the volatility of how their cards work is the whole point. Certain actions may yield big rewards, but most of the time they won’t. And for credit cards — at their core, products that let you make and finance purchases — volatility can be harmful.
“There is something genuinely interesting about using gamification to encourage positive behaviors,” says Matthew Goldman, founder of Totavi, a financial technology consulting firm. “But if you use it to encourage negative behaviors, that's not good. And if you make it too complicated, that's not good either.”
Gamification for a good cause
If you’ve ever convinced a small child to do basically any task, you know the value of making boring things seem fun. You can race them to see who can get their shoes on first, or challenge them to toss their clothes into a hamper like a basketball. Ultimately, it serves the purpose of fostering the child’s growing abilities and sense of independence.
Credit card and financial apps use challenges and interactive elements to teach financial literacy and promote behaviors that can help you establish credit or boost your savings. For example, Arro, a fintech company offering a credit card and other products, will increase your credit limit as you complete personal finance lessons in its app.
Both Fidelity and Robinhood offer credit cards that earn rewards, which are worth more when redeemed into eligible investment accounts. It’s a simple move that encourages using credit card rewards to grow investments (and it keeps you loyal to the brokerage that offers the card).
When it starts to go downhill
The path from “gamification” to “gambling” can be a short one, and that’s where you want to be careful. Prediction markets make it far too easy to place bets on everything from the next prime minister of Greece to whether or not the U.S. government will confirm that aliens exist.
(Seriously, those are actual topics people are betting on.)
While cards don’t take it quite that far, their gamified offerings can range from sweepstakes to ever-changing terms that make it impossible to know what your rewards are worth.
Robinhood will periodically offer the chance to win $100,000, and each entry into their sweepstakes costs 500 rewards points earned on your card. Tuyo, a fintech company that launched a prepaid debit card funded by stablecoins, advertises its “buy now, pay maybe” promotion, where Tuyo will randomly cover one entire purchase made on your card. Neither of these are necessarily bad things, provided you don’t blow all your points or make more purchases than you usually would for the chance to win a prize.
The Coverd Card, which is in waitlist mode, is the prime example of where this idea can go too far. It advertises “up to 100% cash back,” which sounds incredible until you read the fine print. It actually offers anywhere between 0.5% and 100% cash back, averaging out to around 2% cash back over the course of a month.
Point values are determined by a confusing “rewards matrix” that changes on an hourly basis. So for one hour, $1 to $10 worth of groceries can earn 3.67 points per dollar, while $10 to $50 spent on dining can earn 8.67 points per dollar. And to earn 100% cash back, you need to take advantage of a “surge window,” which is a three-minute period starting at an exact time for a specific spending category.
“What if you swipe, but the transaction is delayed by a minute, and now you earn less rewards?” Goldman says. “People are going to start splitting their transactions trying to game it. It's just too complex.”
Who these cards are designed for
When most credit cards offer predictable rewards, who gravitates toward the riskier proposition? “I assume the target is the 21-to-30-year-old crypto-curious, gaming-oriented demographic, rather than traditional consumers or families,” Goldman says.
If you’re interested, treat these cards as you would a responsible trip to a casino. Test them out on a little bit of spending, but otherwise lean on more reliable cards for most transactions. Fintech credit cards aren’t always successful, so your account may be closed if the card gets shut down. Or scratch that gaming-oriented itch with a financial app that rewards you for adding to your savings account or sticking to a budget.
“I think it comes down to something very innate in us: we want to dream big and think things are going to be special. That's what's appealing about gambling, and within some level of reason, it's okay,” Goldman says. “But it's also a little bit of a sign of the ‘gambling is everywhere now’ problem. It's a sign of people feeling like they can't get ahead, so they might as well make a crazy bet.”
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The article Credit Card Gamification: When Every Purchase Becomes a Gamble originally appeared on NerdWallet.