Risk of Ruin
Audio documentaries about risk takers.
Risk of Ruin
Credit Card Arbitrage
Matt writes the blog "Miles Earn and Burn" which stands alone in the credit card space. He has no ads on the site, and he writes about advanced strategies that don't make it into the mainstream travel blog world. The post that got me interested in having Matt as a guest said basically: go to your local credit union and see if there's anything that you might be able to profit from. In the advantage play world that would be called scouting. In the manufactured spend world it's known as probing. https://milesearnandburn.com/index.php/2023/09/29/taking-a-stroll-to-the-local-financial-district/
Email the show: risk of ruin pod at gmail
Follow us on Twitter: https://twitter.com/halfkelly
I think in casino parlance you would say backed off, and I've been backed off by a couple of banks where they're like, hey, you need to cut that out or we're going to shut you down. So I have probably, let's say, a dozen back offs. As far as actual shutdowns go, it's no more than two or three. Another thing I like to tell people actually, and I need to follow my own advice, is that if you haven't been shut down, you haven't hit a deal hard enough.
SPEAKER_03:You're listening to Risk of Ruin. I'm John Reeder. This is episode 37, Credit Card Arbitrage.
UNKNOWN:So
SPEAKER_03:There's an interesting dynamic that plays out when you acquire expertise, which is that every time you gain some new piece of information, it's very common to discard the beliefs you just held as being completely unsophisticated. Or to put it another way, I can't believe I was ever so stupid, and I really can't believe that was yesterday. Let me use an example to make the point. Someone who knows nothing about credit cards might look at them and think, wow. Free money. Just open a card, max out the credit limit, and cha-ching. Maybe we can call this person the dorm room would-be baller. And then someone who knows more than that might think, all credit is dangerous, you'd be better off avoiding all debt. This person has subscribed to a life of monk-like debit card asceticism. Then, someone slightly more advanced would know that actually, some credit can be useful. And if used wisely, it can be a tool to improve your economic situation. And then someone who knows a little more than that might say, we put all of our spend on a credit card and we've earned 2% cash back on everything. We are getting a rebate against the credit card fees that are baked into all products. I think of this person as the Costco budgeter. Then someone who knows more than that would think, Why stop at 2% cash back? Did you miss the giant ad promising$600 every time you open a new account? Why not just open more accounts? These people are, for better and for worse, the airport lounge wildebeests. And then someone who knows a lot more than that, someone who can move hundreds of thousands of dollars through the financial system, often in a single day, well, they might say, your signup bonuses aren't going to do a lot of good when the game is to get as much down at a positive edge And now we are more in the territory of a manufactured spend whale. The interesting thing is that this expertise dynamic isn't credit card specific. You could basically take that pattern I just described, where at every level your understanding of the subject matter gets completely turned on its head, and apply it to lots of stuff. Actually, if this sounds familiar, it was the basis for a scene in Good Will Hunting, which has now become an internet meme.
SPEAKER_01:My contention is that prior to the Revolutionary War, the economic modalities, especially in the southern colonies, could most aptly be characterized as agrarian
SPEAKER_00:pre-capital. All right, of course that's your contention. You're a first-year grad student. You just got finished reading some Marxian historian, Pete Garrison, probably. You're going to be convinced of that until next month when you get to James Lemon. Then you're going to be talking about how the economies of Virginia and Pennsylvania were entrepreneurial and capitalist way back in 1740. That's going to last until next year. You're This
SPEAKER_03:idea became very real to me as I was making this episode, because when it comes to credit cards, I have one understanding and our guest for the episode has a completely different understanding. And I know that his views are much more sophisticated than mine. So I am carrying around mistaken impressions that I will eventually have to discard. To be specific, my wife and I sign up for a decent number of credit cards. Each time, we collect the sign-up bonus of plus or minus$700 and then move on to another card. All of the points we earn go towards travel, so over the past 12 months, that strategy has taken us to places like Costa Rica, Mexico City, Scottsdale, Boston, Honolulu, Palm Springs, Santa Barbara, New York, Las Vegas, Puerto Vallarta, Yosemite, and Maui. And this is very unfortunate, but we are in the group that I earlier called the Airport Lounge Wildebeests. We are coming for any glass of champagne or free biscotti that's not locked down. And there will be no subtlety. In short, we are terrible. Anyway, to do this, we rely heavily on chase points. And in fact, when I've looked at American Express points, I just don't get it. I have a hard time seeing the ROI. I just can't see past the high fees and marginal perks for bullshit like Dell. And I always land on, why bother? And the only problem with my analysis was that it was completely lacking in imagination. I was caught in the same trap I described earlier, where I just didn't know enough to understand. And this was all driven home to me while I was talking to the guest. This is Matt. He writes the blog Miles, Earn, and Burn.
SPEAKER_02:Amex is extremely important. The simple answer is because the expectation value or the return I expect to get from holding Amex cards over the next year is probably an order of magnitude bigger than it is with Chase or any other credit card issuer, frankly. The way they incentivize people to use their cards with employee offers, promotions, spending bonuses means that I can expect that my American Express cards are going to be worth a minimum of six figures to me. And if I really hit things hard, maybe even seven figures to me over the next year to 18 months. And related, by the way, I like to think about the value to me for a bank as being how much would somebody have to pay me to... Say, I'll swear off of that bank. And I think about that with the major three banks a lot. And my number with Amex is you would have to pay me a million dollars to swear off Amex. And I'm not sure if that would be just for a while or forever. It might even be bigger if the number is forever. Just because there's so much there, so much value there.
SPEAKER_03:If you're slowly progressing the knowledge levels that I mentioned earlier, one of the things that can really help is to encounter ideas which are an order of magnitude in difference from the ones you currently hold. So if you're saving a few thousand dollars on travel and you come into contact with someone who can easily manufacture millions of dollars and spend, then just knowing that the much more advanced game exists... can be really helpful. And that's the thing Matt does so well with his blog. His posts contain hints about more advanced strategies, and he includes thought exercises that can get a reader to open their mind to what's possible.
SPEAKER_02:Amex will let me turn cards at a rate that's 10x what any other bank will let me turn cards at, which means that I'm earning 10 times as many sign-up bonuses over a given time period as compared to a Chase or a Citi or a U.S. bank. They offer lots of promotions, like you call in and say, hey, are there any bonuses on my card for adding employees to my account? And Amex will say, why, yes, Mr. I almost said my last name there. Why, yes, we have a bonus for you spend$4,000, you get 20,000 membership rewards points for adding an employee card. And I can ask Amex, how many of those can I do? And they say, well, 99. So as long as I've got the velocity to spend$4,000 times 99, then I've got at minimum five points per dollar spend from just those bonuses, plus whatever points I'm earning for normal category bonuses. So if I spend that$4,000 all at a gas station, then some American Express cards will give me four points per dollar for gas station, and then the five points per dollar for the employee card means nine points per dollar. There are other bonuses that can stack on top of those as well. So sometimes you'll see when you log into your American Express dashboard, spend$10,000 and get, I don't know, 40,000 membership rewards points. And when those come up, they all stack with one another. And sometimes not only do they stack with one another, they also stack with a sign-up bonus. So if I can open a new card that has a sign-up bonus that's worth effectively 10 to 15 points per dollar, and then I add some employee cards onto it, which adds another five points per dollar, and then I go spend at a gas station, which adds another three or four points per dollar, all of a sudden it's not unheard of to be running or to be earning 20 points per dollar on my spend or even more. It's definitely valuable on the cash out side, but my number one go-to for cash out is just converting my points straight to cash. Because as much as I travel, as much as I like to travel, I'm not flying enough that I can be burning hundreds of thousands of points every week or month or however fast I'm earning them.
SPEAKER_03:We're going to hear a number of stories about how credit cards can be more valuable than just 1% back on all of your spend. But first, let's hear how Matt got started in this stuff in the first place.
SPEAKER_02:I got very interested in arbitrage plays in general when I was in junior high. I heard about 14th century, 15th century, I don't know, maybe all the way up to the 18th century. Traders would take silver and gold pieces from one country to another because they countries back then would often have fixed exchange rates. So you could get 20 silver pieces for one gold piece in one country, and you could bring them 10 gold pieces, get your 200 silver pieces, take that to another country that had a 25 to 1 exchange rate, and then get more gold than you started out with by nothing more than just moving those coins from point A to point B. That always fascinated me, and I tend to think of A lot of what I do is a different kind of arbitrage where maybe I spend a dollar, but I only pay 97 cents to spend the dollar. And if I get the dollar back in my pocket after I've spent that 97 cents, then I'm up three cents.
SPEAKER_03:Since the title of this show is Credit Card Arbitrage, I should first point out that we've already covered various other kinds of arbitrage. We've had hedge fund managers who were prototypical arbitrageurs. They would find a company listed on multiple exchanges, short one listing, go along the other, wait for prices to converge, and then profit. Most of the time. We've also had sports ARBs or guys that look for instances where the whole market is showing chiefs minus three and a half and some unfortunate bookie somewhere is offering chiefs minus two and a half. We even had a college professor who figured out how to ARB the horse racing market. The arbitrage we're talking about in this episode doesn't have clearly defined limits. One day, it might be credit card sign-up bonuses. The next day, it might be shopping portal cashback. And another might be figuring out how to push money through the banking system and earn points in the process. But it's all based on the same thing, which is, where are the discrepancies that create opportunity?
SPEAKER_02:In between college and high school, the Nintendo GameCube was launched. There was a special edition Legend of Zelda game that they printed 2,500 copies of or something. It was selling on eBay for 200 bucks and I saw that. It was interesting. I was walking through a Barnes& Noble one day. I saw a Nintendo Power magazine on the shelf and it said, get a free Legend of Zelda special edition disc when you subscribe to Nintendo Power. And I thought, that's interesting, right? A Nintendo Power subscription was$20,$25, something like that. And they're selling for$200 on eBay. So I decided, well, let's see if this works. I ordered myself one. The special edition just came. And then I just put listing after listing after listing on eBay of these discs. And when someone would pay me, I would take their cash. I would use PayPal's virtual debit card system, which is long since gone, enter their address, their name, and that virtual PayPal debit card into the Nintendo site, and mark the order as shipped. Three weeks later, they'd get their disc, and they'd get a free subscription to Nintendo Power that they hadn't necessarily bargained for. I did that for a good eight months. Prices went from$200 a disc to$100 a disc to$50 a disc, and it was still making sense. But then one day, Nintendo stopped shipping those orders, and I received a stack of, let's say, 200 different letters from the post office, all from Nintendo, who had glammed onto what I was doing and told me to cut it out. But that's when I really started to think about there are ways with existing systems, promotions, and it wasn't really credit card related, but even using the PayPal virtual debit cards that existed back then as a way to... not have my same credit card running hot on Nintendo Power Charges. I was able to put all that together and turn it into a handsome profit.
SPEAKER_03:So Matt is, by nature, the kind of person who might notice disparities that others just ignore. And credit cards are low-hanging fruit for people like that.
SPEAKER_02:I got married kind of young. And my wife and I had a kid when I was in my mid-20s. We got divorced two years after my daughter was born. And my wife moved across the country. So I booked flights to go see my daughter two or three times a month every month, and I still do, by the way. And it got really expensive really quick, and I started to think, this doesn't make sense for me to try and support this. I either need to move, which was hard with my career, and I was in grad school at the time, or I need to find a way to make these flights more affordable before my bankroll starts to drop. So I started to look for cheap ways to fly. I had sort of known something about loyalty points and I'd heard about miles. I had, I don't know, 25,000 Delta miles from being a human and flying throughout my life. And I took those miles and booked a one way ticket or excuse me, a round trip ticket. It was great. It was obvious the path forward was to try and figure out how to get a lot of these miles.
SPEAKER_03:Lots of people have signed up for a credit card and received$200 or a free flight. But the difference between most people and the kind of people we have on this show is limits. Most people are naturally constrained by imaginary limits that don't exist in reality. And then the people we have on the show see past those artificial barriers.
SPEAKER_02:I very much tend to think in a way that how can I extend this to its logical extreme? And it doesn't mean that I'll do that, but I always think about that and think about what that might look like. So, um, it was clear to me, I think at that point that, uh, there has to be some way, and I don't know if it means recruiting 10 friends to go get cards and buying their miles from them, or if it means I apply for a hundred credit cards or what, but, uh, I tend to think about how, where are those limits and each of those ways, what methods could you use to get around the limits, like finding new people, maybe finding new banks. And that set me on a path to that and a lot of research and help from others set me on a path to figure out how to scale up from there.
SPEAKER_03:I always love to hear about some major score happening in a godforsaken casino in the middle of nowhere, or better yet, a 7-Eleven. I'm just easily entertained by the stark juxtaposition of really valuable play versus complete shithole. Well, it turns out that this happens quite a bit in the credit card game too. The good targets might be left-for-dead retailers like Dell or Staples or Kohl's or even Sears.
SPEAKER_02:In 2015, back to Nintendo consoles, the Wii U came out, and it was selling for$379 on Amazon, and it was selling for$349 on Sears. That's interesting, but it's not exciting. After fees, you're not making any money playing that game. But at the same time, Sears was running frequent promotions for 20 miles per dollar for going through a shopping portal and buying stuff there. And then there were sort of next level hacks where you could go through a shopping portal, buy a$500 Sears gift card, get 20 miles per dollar for the gift card, then go back through the shopping portal, use that$500 gift card to buy something else and get another 20 miles per dollar. And then, Sears at the same time had a promotion for$40 off of gaming consoles and Sears points. So you put all those together, you're looking at 40, sometimes 50 points a dollar, and points, let's say, are worth at least a penny, sometimes two, sometimes a little more cents per point. So you're getting almost half off, or sometimes even better than half off, by buying consoles at Sears. They also didn't have order limits, and you could use your Sears points to roll from one order into another order. So I started out ordering Wii U consoles, getting my$40 in Sears points and my 40 points per dollar by going through a shopping portal with a gift card and then buying the Wii U. I'd sell them on Amazon and take a little bit of loss in terms of I paid some monetary amount at Sears and I sold after Amazon fees. for a little bit less, but when you take the points into account, when you take the Sears rewards into account, it was very profitable. Effectively, a money printer that was making 50 cents on every dollar that you put into it. At one point in time, I had a living room that was about 30 feet by 15 feet, almost full of Wii U's that were just waiting to go off to eBay or waiting to go off to Amazon or wherever. And eventually I said, this is enough. And also eventually the deal died. Well, so my favorite crazy story is the Wii U series story. I earned enough points. It was about 10 million points from that. And in addition to earning cash back and other things, but specifically I earned about 10 million Southwest points. And those took my family and I all over the place up until six months ago.
SPEAKER_03:If you want to keep things really simple, those 10 million Southwest points were worth at least$100,000. And the wild thing is, it's not like Matt exclusively flies Southwest. Actually, he says that he has status with pretty much all of the major travel programs. I've
SPEAKER_02:had diamond status on Delta for a decade, 1K on United for five years, executive platinum on American for probably four years now. I've had Hyatt Diamond and Globalist status for years, Marriott top tier status. If you name a big chain, Hilton, for example, name a big chain, I have status there or have had status there for a long time. Some of it is through organic travel, but for the most part, it's from promotions or credit card spend.
SPEAKER_03:The great thing? about getting to a certain volume of credit card points is that your travel opportunity costs almost disappear. You don't have to weigh going to Hawaii versus going to Mexico. You just do both. And there's something else, which is that usually distance is a severe penalty function when you're traveling. Pain increases exponentially as you add distance to a trip. Except the credit card hustlers have this figured out too, because they fly on business and first class seats, essentially beds in the sky. So the credit card game takes our planet, which is almost impossibly vast, and turns it into this very small place.
SPEAKER_02:I love to travel. I love to be in a new city. I go at least three or four times a year to Asia, to Europe, to South America. And I try and always visit a new city. Eventually I'm going to run out of cities. But I like to be on the ground, like to explore, look around, see what's going on in the culture there. and that is very much a reward function for me like i said i'm going Three weeks from now, going to Sydney. I booked that a couple of days ago with Miles Iron last week. And I won't lie, I'm very excited to go to Sydney, but I'm also very excited because I'll be flying down in business, flying back in international first class. So it'll be just as comfortable and pampering going down as a nice hotel. And then when I'm there, I get to explore. I'll stay in five-star hotels that, frankly, I'm not paying money for, which is also amazing. and I'll fly back, be pampered again, and get a new perspective on the world while I'm there.
SPEAKER_03:If I propose to someone that they should get involved in this game, a common objection is, I don't spend that much money, so I would have no way to earn the sign-up bonuses. Well, for people like Matt, who go hard at this stuff, the question isn't really how to generate the spend. They have lots of tricks. Every day, they're collecting new moves to turn credit card spend into cash equivalents, like buy a gift card for a stock, earn points, then buy the stock, sell it, and pay off the credit card.
SPEAKER_02:There was a brokerage named Stockpile, and in 2018 and 2019 for Black Friday, they had fee-free gift cards that you could purchase with a credit card. And in 2020, they did the same thing, but they started adding limits. In 2018 and 2019, the only limit that they had was$10,000 per transaction. So I ran out and grabbed every single credit card I could, and I'd do 10,000 here, 10,000 here, until my credit line was full. And then 10,000 here, 10,000 here, until my credit line was full. And I ran through all of my credit cards until I had charged probably close to$350,000 in stockpiled gift cards and redeemed all of those. But I don't know, VGSH, which is short-term credit, securities by Vanguard, held out for three days, sold it, and then transferred all the money back to my bank account. So I first found that in 2018, and then in 2019, to get ready on the assumption that they would have the same promotion, which they did. I got friends and family's credit cards ready. I gave them the money ahead of time so they could feel good that I was going to charge their card and they wouldn't end up losing the money for it and doubled or tripled that volume.
SPEAKER_03:I think it's also helpful to think about these moves as being like examples or prototypes, but the specific details can vary. For instance, maybe you can get a discount on a gift card and then sell it off in the secondary market.
SPEAKER_02:For the last six or seven years, Target has offered 10% off of gift cards up to$500 at Target on Black Friday only. And When this promotion first came out, you could bring 10 gift cards up to the register, put 500 on each of them, buy them all on a single transaction, put them in your pocket, go back in line and get 10 more and keep doing this until they kicked you out of the store. And of course, there are targets everywhere. So I could go to the next target, do the same thing over and over and over again. Fortunately or unfortunately, Target has gotten a lot smarter and now they tie it to your Circle account, which is tied to a phone number and scaling it's quite a bit harder. But Black Friday tends to bring out things like that. One other note on those Target gift cards is the resale rate for those is usually somewhere between 90% and 92%. And it typically drops around when Target does these sales to 89%. So typically, you're buying a ton of Target gift cards, holding them for three to four weeks until the market recovers. And then you're offloading at face value, or excuse me, at the value you paid. or perhaps even for a profit on top of all the credit card spend and credit card rewards you earned.
SPEAKER_03:This stuff is also pretty scalable. You can bite off as much or as little as you want. If you don't have time to go stand in line buying and liquidating gift cards, you can do less intense stuff. And also the reverse is true. It's possible to find edges that are much larger. I
SPEAKER_02:would say my threshold for a major play is probably something I can earn$50,000 or the equivalent of miles at. I think my definition of what that is has changed over the years. It probably was once$1,000 was a major play and then$5,000 was a major play and then$10,000 was a major play. It definitely changes.
SPEAKER_03:Matt is using terminology that should be familiar if you've heard this show before. He's talking about plays in the same way that an advantage player might. And he also mentioned having a bankroll.
SPEAKER_02:My background, career-wise, I was a software developer, eventually an engineering manager, and then chief scientist for a big company. And that paid well, but also boring and a time suck. But the pay that I got from that does very much go into what my bankroll was five years ago, and that bankroll accelerates on itself to turn into what I have now.
SPEAKER_03:There are various sources of friction that you might run into while generating points. Maybe one of them is time. If you're reselling gift cards or electronics, it takes time and effort. Another source of friction is fees. There are services that make it easy to spend. They're just going to cost you something. So the credit card ARBs are on the lookout for stuff that can be done with no fees and which doesn't require leaving the house. Although sometimes they find something like that and it turns into unexpected effort.
SPEAKER_02:There is a bank that's in southeastern United States. And during COVID, slightly after COVID, through an intermediary, there was a way effectively to move money straight from your credit card to that bank account. And it was almost that simple. You'd you'd run a$3,000 charge. And then within two or three hours, you'd have$3,000 more in your bank account. So a group of us, first of all, got together and figured out how to form that loop. And then there was some automation that went behind that. So somebody wrote automation to go in and cause their credit card to be charged over and over and over again. And we're talking like two to three times a minute. And the game became what credit cards will let us charge ridiculous amounts of money and not decline. And there are two types of cards on the market. One is a credit card. One is a charge card. And typically charge cards don't have limits. So the game was to find a charge card that would let you do that. And then on top of it, this particular cash out mechanism only worked with Visa or MasterCard. So not only did we have to find a friendly charge card, we had to find one that was a Visa or MasterCard and charge cards just aren't a common product. So we did that. We all automated or we all took advantage of this automation to a certain level, but There was somebody who went really, really big, as in, again, this thing was charging every 30 seconds for almost a full day. And the bank saw this going on, and they froze everyone's accounts. Except this bank also only technically allows you to have accounts if you're in their geography, and I wasn't in their geography. And like six hours before they did this lock, they locked my account for not being in the geography. So I had to actually fly to Texas, not Lubbock, somewhere else, and go in and talk to a branch manager on about a day's notice to get my account unlocked. And before I flew, but after I booked my flight, that's when I found out that everyone else had been locked. But I had the flight and I didn't want my money held indefinitely. I flew to Texas. I was on the ground for two and a half hours between my landing and my return flight. I went and talked to a branch manager, got him to unlock my account. He sent me on my way, gave me his card and said, if you ever need anything, let me know. I flew home and then I was the only one with an unlocked account and I was the only one able to get my money out in any reasonable amount of time because my account was unlocked. Some of those guys had a months long battle to get that money out of those accounts. Mine still exists. I can log in and use it right now.
SPEAKER_03:Lots of marketing is based on offering something that's kind of too good to be true and then attempting to throw up a roadblock to stop abuse by saying limit one. Okay, well, not everyone sees limit one and agrees that's a roadblock. Some people see limit one and it's barely a speed bump.
SPEAKER_02:I tend to think of legalese when it comes in terms and conditions for an offer in a very face value sort of way. And if an offer says limit one per person, my initial thought is, A, how do they define what a person is? And does a person to them mean an email address? Or does it mean a phone number? Or does it mean an address? Or does it mean a household? Does it mean somebody who is my neighbor and says I'm free to sign his name up for a mailing list in order to get 20,000 bonus points for doing it? Or is it okay if I use my office? Or what if my house looks like an apartment building and there were 10 apartments? Would that look like 10 different addresses to a promotion or would it look like one? So I like to take terms and conditions at very much face value. and look at how you might wiggle around when they use a word like address or person or limit. And I suppose find a way that you might twist the meaning of those words without actually removing the meaning of the words. And then on the flip side, I come out at it from a programmer's perspective and say, If I was a software developer and a bank came to me and said, we want you to implement some rules for this bank promotion, what sorts of things would I think about as a software developer in order to prevent people from gaming? And what sort of things might I not think about? And what other holes might I leave so that I can find a way in through some of those other factors?
SPEAKER_03:Everyone that gets into this stuff is gaming the system at least a little. So then the question is, how much gaming is too much gaming?
SPEAKER_02:Again, something has to be legal for it to pass my muster. I feel like it has to be more or less within the spirit of the promotion, and I know that that's very fuzzy, and spirit is open to interpretation. But Um, I have a lot of Amex cards and I keep getting new ones and Amex is completely free to stop granting me credit cards, but they don't do it. They just keep issuing them to me and I get$110,000 or point signup bonus. Um, close that card a year later and open it again and get another 110, uh, point signup bonus. Uh, do that on repeat and then do that times end, right? It doesn't just have to be one card. If they stop doing that, I'll be sad because I like the money. I like the points, but it's within their rights. And it is ultimately their decision to grant me credit.
SPEAKER_03:I have definitely found myself reading about ways to hack the system where my first reaction was, wow, that's really clever. I wish I would have thought of that. And then my second reaction is, wait, I don't want to do that. This credit card company has done nothing but provide me with great products and valuable reward points. And I'm not saying my view of what's ethical is the right one. Gray areas are gray for a reason.
SPEAKER_02:Different people have different lines in the game. There are people who do things that I would never do. To give a specific example, in the past you could click through a shopping portal to a particular store, buy a bunch of stuff for pickup, never pick it up, but then still earn the miles from the shopping portal even though you never picked up the order and therefore never actually paid for the order. In my mind, that's return fraud, so that's not something I would do. There are people who are willing to do that. I tend to try and take a legalistic view of promotions and what is fraud and what is not in the legal sense. So if something, I think if I'm in court, could I argue with a straight face that no, this is not fraud because X, Y, and Z?
SPEAKER_03:I don't know if you've ever gotten an offer on a credit card and it's something like spend$200 at a Caesars property and get$50 back. And it's like, well, I would have to be pretty desperate to pay to stay at a Caesars property. So no thanks. Well, the people who look at credit card offers and see only games have a different reaction. They think, I wonder if it would be possible to book something through Caesars and then get a refund, but a refund in a different amount. than the original charge. Maybe in a way that Amex would have a difficult time tracking. So get the statement credit and never actually spend the money. As Matt often says, gamers are going to game. They can't help themselves.
SPEAKER_02:I definitely don't do it in any sort of bulk because I think it is return fraud. I do think that there are windows where if I'm booking a trip to Paris and there's a promotion for get 10,000 miles when... I book on KLM, then I'm likely to do that. And I do buy seat upgrades. And I probably, I mean, let's say there's a 50% chance I'm going to take this trip, then I feel good about doing it. If the offer is purely something that I would never do, like I'm never going to go on a Royal Caribbean cruise because I don't like cruises, then I'm not going to do that. It doesn't pass my muster.
SPEAKER_03:For any advantage, there will be the size of your edge in theory, and then the size of your edge in reality. So subtract out your miscalculations, along with the times you didn't get paid, and also a general basket we'll call screw-ups.
SPEAKER_02:I had some clawbacks of some American Express rewards points in the last week. And if you look at the overall number, it's kind of big. But then if you look at how much money I've earned from American Express over the last year, it's much, much less than a percent. So whatever. I don't care. It's cost of doing business. I have had instances where... One time I was buying two gift cards at a grocery store and the cashier scanned the same gift card twice. This is what I know in retrospect. The cashier scanned the same gift card twice. The second time it kept erroring out because it had already been scanned was the issue. And in the end, managers came over. I checked out, only paid for a single gift card. I was handed the gift card. The other one got torn up. I walked out of the store. looked at the receipt and looked at the gift card and realized that I got the gift card that was never scanned and the other one that was scanned twice had been ripped up. That was$500, but again, whatever, it sucked. I can move on. It's not worth, in my mind, going back and trying to talk through what happened with the general manager, go through their accounting department, put... pieces of a gift card back together try and figure out how to refund something that's quote unrefundable so it was a cost of doing business there too
SPEAKER_03:the more that you game a system the more likely it becomes that someone is not going to appreciate what you're doing for instance a retailer might not like that you're shipping orders to an electronics reseller a bank might not like cash deposits or other odd ways that money is moving through their accounts and And a credit card company might not like a rapid increase in spending. And the thing about crossing lines like that is that you're not going to know until it's too late. It's sort of like wandering around a dark room just waiting to step on a Lego or run into a door. But Matt says he doesn't really stress shutdowns.
SPEAKER_02:Usually, it's not stressful to think about getting shut down at all because a lot of the value comes from a bank that has three branches or a credit union that is in Wichita, Kansas, and I don't ever go to Wichita, Kansas. Let them shut me down. I don't care. If Chase shut me down, I'd be really sad. If American Express shut me down, I would be devastated.
SPEAKER_03:There's a whole ecosystem of market makers for things like gift cards and electronics. So you buy an Xbox with a 20% discount, earn the credit card points, and then resell it. to someone who is also going to resell it. Now, the interesting thing is that market making is known to be a very tough business, kind of wherever it's tried, right? If you followed the FTX fiasco, then you know it was their market making hedge fund that sunk the whole ship. Or there are companies like Zillow and Opendoor that have tried to become market makers for housing. They offer quotes to buy and sell at the same time, and they have had a tough go of it. So if I tell you that in the manufactured spend world, there have been some high-profile failures of resellers you shouldn't be surprised but there's a difference between a risk that can exist and a risk that's likely to materialize and this is an empirical issue for someone with experience matt says he's never been burned by a reseller failing
SPEAKER_02:one of my cardinal rules is never have more money with a third party than you can afford to lose and i'm excluding banks and credit unions and credit cards to have federal regulation and protections around them but when I'm dealing with a gift card reseller or a buying group. It would be devastating to me to lose$100,000, but if I lost$1,000, I'll be a little sad, but I can move on from that. So I make sure my total balance with any individual third party is below my pain threshold. And then I deal with scale by diversification through multiple parties on the assumption that you won't have four parties all fail at the same time. That said, I've never been part of a failed buyers group or failed gift card reselling group.
SPEAKER_03:Imagine you got an offer to go to a website, click a button, and you'd earn five cents. It's like, on one hand, that's kind of free money. And on the other hand, it's not really worth your time. But what if you could get a robot to do the clicking for you? Well, some of the manufactured spend people are doing stuff like that. There's some small edge, which might not be worth it for a human. but they create a bot and just automate the task.
SPEAKER_02:So the automation that I tend to use is almost always browser-based automation, although sometimes you have an Android emulator so that you can script a mobile app. But most of the banks and payment services and other companies that we work with have a mobile app or they have a website, and that's how customers interact with them. And therefore, the automated scripting necessarily has to go through those things.
SPEAKER_03:There's a part of the stuff we're talking about, which is just simple addition and subtraction. Start with the rebate you're getting from whatever promo you're hitting. Example, sign up bonus of 15% of your spend. Then how do you create the spend to realize that edge? Even if you have to give some of it back, you could still be ahead. Maybe you find a route that charges 3%. but puts the money right back in your bank account. So you're still ahead 12%. And on an ROI basis, you're doing really well. Then it's kind of a question of what's the universe of rebates that are worth your time? Also, as you advance, you're going to collect more strategies.
SPEAKER_02:Some of the best plays in the past have come from bill payment services. And a lot of the bill payment services are interesting or historically rather were interesting because You could take gift cards that you bought at the grocery store and use them to pay a bill using these payment services. But if you're buying gift cards at the grocery store, they're probably max of$500, maybe$200 of face value. And to scale that, that means you're going to have to send, if I buy$50,000 worth of gift cards, I've got to send 100 different payments. And that's super tedious, super boring, and it's a good way to burn yourself out. But if you can use a mag stripe reader to swipe in those 50 cards into a spreadsheet and then let the automation software go send 50 different payments, then you can walk away and make sure everything went the way it was supposed to an hour later and be free to do other things. If your bankroll is big enough and you know enough plays, it's very easy actually to hit$100,000 a day. There are bill payment services that will happily take a credit card from a company, charge 2.9%, and then pay a vendor. And if you're on both sides of that transaction and you're earning more than 2.9% in rewards, then it's not hard. You can do that from home with maybe two or three bill payments and you hit$100,000.
SPEAKER_03:The written material on this topic doesn't exist in a manufactured spend for dummies. So for someone who wants to learn more, where could they even go? Well, the info is scattered all around the web in travel blogs and Reddit. So I will say Doctor of Credit does look low-level.
SPEAKER_02:when you look at it. And like you say, you read the comments and it gets deeper. But there is a lot of knowledge when you read between the lines in the comments. I won't say every major play I've had you could find in the comments of Doctor of Credit, but I would say most major plays that I've had over the years you could find breadcrumbs and hints in the comments at Doctor of Credit. The key is to read between the lines to do your own exploration and to think about what they might not be saying and why they might not be saying that.
SPEAKER_03:If you've been listening to this episode and you're not even sure what you're listening to, I get it. I totally get it. This is such a niche and dense topic that it would be impossible to hit every single listener with exactly what they need in order to understand it all. But If you're interested in actually exploring this world, Matt has some advice.
SPEAKER_02:So my first question, if somebody came to me and wanted to do that, is what goals are you looking for? Are you looking to travel more? Are you looking to stay in luxury hotels? Do you not care? Are you looking to get a car with points? Are you looking to just build more cash back in your portfolio and increase retirement? And the specific strategies you're going to use are going to vary based on those goals. But I think that the general advice I would give is that you want to spend half your time learning and half your time looking around for new experiences. Not new experiences. Half your time looking around and half your time, let's say, probing for new credit card companies, new credit unions, new casino promotions. then you're bound to find something. The reading will help you know what to look for and help you learn to sort through whether what you found is interesting or not, probably. And then the exploration will help you actually find those promotions that are going to help meet your goal. Once you start actually trying to be a practitioner, I think the best thing to do personally is to go try and reproduce what everybody says works. So that might be buying a gift card at a grocery store in order to earn, let's say, credit card rewards for a grocery bonus and maybe some fuel points at the grocery store. And then you go pay a utility bill with it because your utility bill accepts debit cards. That's really easy, but even that can cause like 10 speed bumps along the way. Like maybe the cashier says, hey, you're not allowed to buy these with a credit card, which probably isn't true, but they like to say it. Or... There's always a possibility you get a compromised gift card or maybe the gift card you bought looks like a debit card, but your utility blocks it. So you can't actually use it. So a lot of manufactured spend techniques are globally applicable. But when you put the rubber to the road, a lot of it is also very local. And as you're trying to transition, knowing what works around you and with your particular bank accounts, utilities, and grocery stores, it's critical to know what works for you specifically. I
SPEAKER_03:started this episode talking about levels of knowledge. I should say that pretty much always the thing that separates you into your knowledge bucket is experience. Matt just said that the way to become a practitioner is There is another way to say this as well, which is that we should all seek to be empiricists. The thing that separates knee-jerk hot takes from actual knowledge is whether we've collected any data. So you can take any belief you have and then go test that belief versus the data. As long as you update your beliefs, you are an empiricist. It sounds trivial, and yet this is an incredibly effective way to do it. to abandon your misconceptions. It's like, if you're right, wouldn't you want the data to know? And also, if you're wrong, wouldn't it be nice to have the data to know? In the world of manufactured spend, they have a term which goes perfectly with this idea, which is probing. If you're wondering if the first bank of Boise will let you deposit with a credit card and not get charged a cash advance fee for doing it, there's an easy way to know the answer. Go try it. So big picture, being an empiricist, will eventually save you from your bad ideas. And small picture, collecting data will also put you into good opportunities.
SPEAKER_02:When I was starting out, I would look into things a lot and the juice was not worth the squeeze. And I think as I've matured in my skill set, I have a better idea of when the juice is likely to be worth the squeeze is one answer. And A different answer but also part of the equation is that networking is key and I can't hope there are 10,000 banks and credit unions just in the US and several of them failed today and none of us have ever heard of them but probably let's say 40% of them have something interesting somehow. and I can't hope to look at all of those with the time I've got. Other people are in the same boat, certainly, and when you're collaborating, one person can go explore three credit unions, another guy goes and explores three banks, and they can compare notes, start to share data, and help jog ideas about why something with this credit union that you're comparing notes on might actually be interesting, even if I didn't think it was interesting when I took a first look.
SPEAKER_03:By definition, if an edge is universally known, then it ceases to be an edge. In order for something to be an advantage, it has to be available only to a minority. But for any of the topics we cover on this show, we also know that operating in teams tends to be pretty effective. So you have these two forces going in opposite directions. On one hand, it helps to make sure edges stay private. And on the other hand, it's really helpful to be part of a syndicate. But how do you find collaborators?
SPEAKER_02:It's hard because if you share a play, the right kind of high EV, high return play is probably going to die if it spreads. And the stuff that's high return, high EV spreads faster than the stuff that's not. So you've got to find a way to make yourself stand out. And I don't want to say it's a popularity contest, but it's not. But the more you can be an independent thinker and the more you put yourself out there and work with others, the better your return is ultimately going to be. And that is how I started the blog for those reasons. I put myself out there and it's paid off. I don't have any ads on the site. There's no credit card affiliate links. If you apply, for a chasing card through my site, I don't earn a cent. But that's not my real goal. My goal was to build that network and have the collaboration.
SPEAKER_03:I just want to do a quick rundown of a partial list of info that you will need to know in this world. You have to know the current credit card offers. Every bank has dozens of products. So what's the bonus for the MX Business Platinum and the City American Airlines Business Card and the Chase Inc.? And how do all of these offers compare to their historical highs? You don't want to sign up for a new card at an unusually low offer. And then what special offers are available on each card? They might each have a hundred different marketing offers that range from spend$800 at Dell or and get$120 back to save$3 at Jimmy John's up to three times. And then each offer may or may not be combined with shopping portal rebates. Oh, and there are seemingly infinite shopping portals. Then every retailer gift card trades at some discount to par. So what's the spot price for Target gift cards today? And what might it look like in a month? The mountain of information is another reason that experience is a premium.
SPEAKER_02:A lot of it is in my head. A little bit is in notes and spreadsheets and other places. I don't have a photographic memory, but I'm probably a lot closer to that than a lot of people are, so I retain information pretty well. But search is great. Like I said, collaboration is super important, and it magnifies your earning potential when you're collaborating with the right people. You tend to collaborate over Telegram or iMessages or Slack or something in today's world. So if you forget the details on something and go, what were we talking about? Or let me hit up my friend Dave and see what Dave says about this. Because I remember there was an angle, but I don't quite remember what it was.
SPEAKER_03:On one hand, all of the stuff we're hearing about has to be found. And on the other hand, it's all openly advertised. I mean, think about the fact that these things are all the result of some marketing initiative. Some company paid to get the word out. So it's all hiding in plain sight.
SPEAKER_02:I think that something like this is always going to exist. If we look back 10 years ago, it was the time of, maybe even 15 years ago, it was the time of mint coins, buying coins from the U.S. Mint with a credit card and taking them to the bank. No fees. And that era has passed, but that doesn't mean that there aren't games to play. And if I think of five years ago, that was a time of bill payment services where there were 100 bill payment services and they were all gameable in some way. And now most of those have died or closed off their loopholes. And I'm sure that we'll get to a point where that was the time of American Express when we look back probably on today. But I think that marketing budgets always exist. Companies always need new customers. And the optimal level of fraud is non-zero to make a product usable. So there will always be something out there.
SPEAKER_03:Matt told me about an article titled, The Optimal Amount of Fraud is Non-Zero. And I will say that the first thing this article makes clear is that the line as to what's fraud and what isn't is pretty arbitrary. You can just change some text on a website and something goes from fraud to Matt also says that the logistics of tightening things up means that loopholes will always exist. I mean, put yourself in the shoes of a credit card company. You want to reduce gift card buying abuse, but you don't want to hurt the customers that buy 100 Starbucks gift cards to give to their clients. I
SPEAKER_02:think that marketing and software departments are not good at looking for hustlers. I think that they've gotten a lot better in the last 10 years or 15 from when I started until now, but they're still not good at it. They have learned lessons along the way as airlines have. are less rewarding for certain types of spend than they used to be because they found loopholes. But it's very much a whack-a-mole type of game where a loophole comes up, somebody realizes it, or they don't, and they close it. Another loophole comes up, and that loophole may live on for years. And the marketing and software people do learn from that, but software development is a very slow process. Marketing promotions tend to have timescales of months or even a year, so to change it is kind of like trying to steer an aircraft carrier, right? You're not going to turn around in a day. Typically, you've got to go through a requirements document, a bug fix, a code review, developer testing, deployment, and whatever red tape there is in addition to all of those things and business considerations about when you can actually change something and potentially legal considerations about when you can change something based on the terms and conditions that you initially published. So all of that means that when something is exploitable, it tends to stay exploitable for a while. And I think sometimes when they're playing whack-a-mole and one loophole comes up and they get so focused on that loophole that there might be three others that have come up and they're not seeing them because they're so worried about the one. So they did learn from that loophole, and then they'll probably get better over time, but people turn over as well. So marketing departments have new employees, software developers move jobs every three to five years, and it's a new set of lessons to learn. So until the collective zeitgeist understands that gaming might be an issue, and frankly, it may not be an issue ever, it depends on the percentage of gaming versus the percentage of actual users of a promotion, then I think we're going to continue in this current regime.
SPEAKER_03:Matt has the kind of accumulated knowledge that you would find in a professional in any field, and yet he says he doesn't really consider this a career.
SPEAKER_02:I consider this as a hobby that pays very, very well, that I can set my own hours, I can do it part-time, and it can fund my travel lifestyle, and It helps me. It replaced a paycheck for me, right? It helps with my kids through college. It puts food on the table. But I don't think of it like a career. I don't approach it like it's a business.
SPEAKER_03:Even if Matt doesn't think of the hustle as a career, I would offer that there's a third way to view it. So not a hobby and not a job, but rather as a craft. I think Matt has the traits of a craftsman. The details matter to him.
SPEAKER_02:So what I hated about the corporate world, was never the actual art of doing computer science and discovery. It was meetings. It was turning into a people manager. It was red tape and having one department fight with another department needing to mediate. What I very much enjoyed about my career is that I could go in and build a piece of software that did something that nobody's probably ever done before and that solves a real problem. In a lot of ways, manufactured spend and travel hacking are solving the same kinds of problems. I'm always discovering new things. There are loopholes. It is very much a way to use your brain to look for loopholes, to read terms and conditions, and find things that might fly under the radar. And I tend to think about everything as... let's say, a software architect sort of mindset, which is I look at a bank promotion and I say, that's interesting. They'll give me 10,000 points if I spend$5 10 times using their debit card. And I think, okay, if I was the guy building this software, how would I build it? And what bugs would there probably be? Because either the software developer didn't think about it or they thought no one would care. And that happens surprisingly often that bugs that you think might be there because it would be hard to work around do in fact end up being there. So it leaves a window for opportunity.
SPEAKER_03:Matt's blog is full of information and the kind you're really not going to find anywhere else. So it is perfect for me because I love to dig in and learn about stuff. The deeper the rabbit hole, But there's something beyond the information, which I also appreciate. I like the aesthetic. It's a true blog in the bloggiest sense of the word. It's sparse, like an artifact leftover from an earlier time. And the really weird thing is that even though you could look at it and think it might have been started when GeoCities was a thing, that's not the case. It's more recent than that. It seems intentionally retro.
SPEAKER_02:One of the great things about the hobby is that you do it on your own terms with your own time. And if you don't want to do something for a week, then you don't do something for a week, and that's okay. And if you want a big redemption to go fly on Emirates and take a shower to the Middle East, then you can grind for a second and do that too. So I do see myself doing that all the time as far as having a blog in the next 10 years. When I started my blog, I don't know, four years ago, I had several people say, wow, Ben, Blogs are kind of 2013. It's a really interesting time to start a blog, but it's been very successful and I enjoyed it. So I guess sometimes I'm behind the curve, but I don't think in five years that the blog will probably still be around.
SPEAKER_03:I found Matt when I was looking for a way to go beyond signup bonuses and learning about some of the more advanced methods has definitely been interesting. But I also have to say that the FOMO is severe. There are so many ways to grind out edges versus the financial apparatus, and there's a limited amount of time in the day. So knowing these things exist also has the effect of making me feel very anxious that I'm not doing more.
SPEAKER_02:There are always two things I say. One is, somebody's always hitting this harder than you did, and somebody else always found this before you. That doesn't mean they're hitting it harder than you did when they found it first, but it's very hard to do something unique and novel and be the best at it.
SPEAKER_03:Thank you. Thank you.