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Update: Some offers mentioned below are no longer available. View the current offers here – Starwood Preferred Guest Credit Card from American Express
Today, TPG Senior Points & Miles Correspondent Jason Steele looks at several mobile and online payments options, and explains why you should be careful when using them to meet credit card spending thresholds.
We recently received this question from TPG reader Trevor regarding the payment service Venmo:
“I was wondering could write about how to maximize payment apps like Venmo. It charges 3% for credit cards, and is free for debit cards, so is there any situation where it would be profitable to use a credit card, earn points, and pay the fee?
The idea is that even with a charge for sending money, there may be opportunities to use this service to earn points and miles when you send money to others. Since Venmo is becoming very popular among college students and other young adults, I wanted to take a closer look today.
What is Venmo?
Venmo is a payment transfer service that purportedly can be used to transfer funds to “pretty much anyone with a phone number or email, whether or not they have Venmo.” Another major advertised benefit is that payment transfers are “free for everyone,” although this only applies to payments from bank accounts and major debit cards; credit card payments and unsupported debit card payments incur a 3% fee.
How Venmo should work, in theory
Let’s say you’ve just been approved for a new credit card that you need to spend spend $5,000 within six months of account opening.
The problem is that $5,000 is no small chunk of change, and you might not be able to easily meet that spending requirement through purchases you would normally put on a credit card. Venmo can help by letting you use your card to cover additional expenses, like settling a debt with a family member or friend, paying rent, paying a babysitter or dog walker, or really any other interpersonal money transfer. The additional fees could be worthwhile if using Venmo makes the difference in earning the 15,000 bonus points, which are worth $360 according to TPG’s most recent monthly valuation of 2.4 cents each.
Venmo has a monthly limit on sending funds of $2,999.99 for those who have had their identity confirmed, so in theory, you could easily meet the minimum spending requirement for the Starwood Preferred Guest Credit Card from Amex within two months. This technique could also be used to help meet the annual spending thresholds of other credit cards, when combined with your regular spending.
How Venmo appears to work in practice
If you have experience using similar payment services, I wouldn’t blame you for being skeptical about Venmo, and that skepticism would be well justified. Flyertalk and other forums have numerous reports of Venmo shutting down accounts and freezing funds for months. This should be little surprise considering that Venmo is owned by a company called Braintree, which was acquired by PayPal in 2013 (PayPal itself is a subsidiary of Ebay). PayPal is notorious for freezing accounts on the mere suspicion of just about any activity that doesn’t meet its approval, and stonewalling account holders for months while they try to get their funds released.
What’s even worse is that Venmo has recently come under fire in the mainstream media for egregiously lax security standards that have reportedly allowed hackers to drain the linked bank accounts of Venmo users. To top it all off, victims have found it impossible to contact or speak with Venmo representatives in order to report problems (just like PayPal). Thankfully, Venmo appears to be rapidly upgrading its security in response to these well publicized incidents. Nevertheless, it will take time before this start-up company is widely seen as trustworthy.
Alternatives to Venmo
Venmo is attractive to award travelers because it can help with meeting credit card spending thresholds, with the idea that the convenience might outweigh the 3% fee. However, the prospect of having your funds frozen (or hacked) trumps any possible benefit. The same is true of PayPal and various other similar money transfer services that are attached to your bank accounts and credit cards. Other vectors for trying to meet minimum spending requirements (such as Amazon Payments and Green Dot reloads) have come and gone, but there are still some avenues left.
American Express Serve allows up to $1,000 in loads online each month in $200 increments, and Serve also offers free bill pay services, so you can use it for all sorts of bills that normally wouldn’t accept credit card payments, such as rent, tuition, and utilities. Unfortunately, Serve’s bill payment features are kind of primitive; for example, you can’t schedule payments in advance, so you have to remember to initiate payments a few days in advance. Furthermore, with a load limit of just $200 a day, it’s not easy to apply funds to the card. Unfortunately, American Express just announced that this option will no longer be available as of April, 16.
Nevertheless, the Target RedCard from American Express offers up to $5,000 per month in credit card loads, and also offers bill payment, but RedCard must be loaded in person at a Target store. Serve and RedCard are actually two versions of the same product (as is Bluebird by American Express), and individuals can only have one version of these cards. So like Serve, using RedCard to make payments is less convenient than the normal scheduled payments you make from your bank.
Another strategy I’ve enjoyed is purchasing gift cards at supermarkets, which can offer additional rewards if you use a card that earns a category bonus like the Amex Everyday Credit Card or Amex Everyday Preferred Credit Card. The same goes for purchases at office supply stores using the Chase Ink Plus Business Card or the SimplyCash Business Card from American Express. You can buy gift cards for retailers you shop with regularly, or buy prepaid gift cards to use at your discretion.
Finally, there are other methods of meeting credit card sign-up bonuses that don’t rely on questionable payment services. For example, you can often use your credit cards to prepay bills like insurance or utilities, and you can make tax payments with a credit card fairly easily. Another option is to use your credit card to pay college tuition, either in time or in advance. In any case, you should consider whatever fees you’ll incur by using your card to make payments, since those extra charges could easily offset the rewards you earn.
Venmo can be a valuable service and it’s growing in popularity, but I can’t recommend it as a way to earn points and miles though your credit card. To answer Trevor’s question, yes, there are situations where it might be worthwhile, but I think there are better options. Don’t overextend yourself when you’re applying for new credit cards, and keep the minimum spending requirements within your means. By trusting your instincts over a start-up company’s terms and conditions, you can achieve your award travel goals without risking your finances.
The Points Guy Assessment: The Chase Sapphire Preferred is a great pick for the beginner and the frequent traveler. The CSP has superb travel benefits, double points on certain purchases, and a 50,000 point sign up bonus. The $95 annual fee is waived the first year so this puts it as one of the less expensive cards, while still allowing you to earn one of the most valuable point currencies.
The Points Guy Assessment:
The Chase Sapphire Preferred is a great pick for the beginner and the frequent traveler. The CSP has superb travel benefits, double points on certain purchases, and a 50,000 point sign up bonus. The $95 annual fee is waived the first year so this puts it as one of the less expensive cards, while still allowing you to earn one of the most valuable point currencies.