Credit Card Arbitrage

I think in Casino Parliaments 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 need to follow my own advice is that if you haven't been shut down you haven't had a deal hard enough. You're listening to Risk of Ruin. I'm John Reader. This is episode 37, Credit Card Arbitrage. 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 that. 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% cashback 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% cashback? 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 will de-beasts. 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 sign up bonuses aren't going to do a lot of good when the game is to get as much down at a positive edge as possible 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 Goodwill Hunting which has now become an internet meme. My contention is that prior to the Revolutionary War, the economic modalities especially in the Southern colonies could most aptly be characterized as a "Grarian Free Capital." As I was making this episode, because when it comes to credit cards, I have one understanding and our guess 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 dollars 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 Will the Beasts. 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." Alex is extremely important, the simple answer is because the expectation value or the return I expect to get from holding anx cards over the next year is probably an order of magnitude bigger than it is with chase or any other credit card issue or 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 get 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 Amix is you would have to pay me a million dollars to swear off Amix, 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. 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 and 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 in spend, then just knowing that the much more advanced game exists can be really helpful. And that's the thing that 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. Amix will let me turn cards at a rate that's 10X, let any other bank will let me turn cards at, which means that I'm earning ten times as many sign up bonuses over a given time period as compared to a chase or a city or a US 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 Amix will say, "Why yes, Mr. Amix said my last thing there." Why yes, we have a bonus for you spend $4,000 to get 20,000 membership rewards points for adding an employee card, and I can ask Amix 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, I'll let 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 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 ten to fifteen 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 an hurdle to be earning or to be earning twenty 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 playing enough that I can be earning hundreds of thousands of points every week or month or however fast I'm earning them. We're going to hear a number of stories about how credit cards can be more valuable than just, you know, one percent back on all of your spend. But first, let's hear how Matt started in this stuff in the first place. I got very interested in arbitrage plays in general when I was in junior high. I heard about like 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 countries back then would often have fixed exchange rates. So you could get twenty silver pieces for one gold piece in one country and you could bring them ten gold pieces, get your two hundred silver pieces, take that to another country that had a twenty five to one exchange rate and then get more gold than you started out with by nothing more than just moving those coins from point eight to point B. That always fascinated me and I tend to think of a lot of what I do as a different kind of arbitrage where maybe I spend a dollar but I only pay ninety seven cents to spend the dollar and if I get the mud dollar back in my pocket after I spent that ninety seven cents then I'm up three cents. 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 arbitrage yours. 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 arbes 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 cash back 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? In between college and high school, the Nintendo GameCube was launched. There was a special edition Legend of Zelda game that they printed 2500 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 and 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. I thought that's interesting, right? An Nintendo power subscription was 20, 25 dollars, something like that. They're selling for 200 bucks on eBay. I decided, well, let's see if this works. I ordered myself one, the special edition just came. When 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. Mark the order is shipped. Three weeks later, they'd get their disc and they'd get a free subscription in 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 slammed on to what I was doing and told me to cut it out. But that's when I really started to think about their ways with existing systems, promotions, 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. 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. 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. 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 the people we have on this show see past those artificial barriers. 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 it was clear to me, I think, at that point that 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 100 credit cards or what. But I tend to think about how, where are those limits in 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 other set me on a path to figure out how to scale up from there. I always love to hear about some major score happening in a God-for-saken casino in the middle of nowhere or better yet, a 7/11. 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 Coles or even Sears. 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 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 by $500 Sears gift card, get $20 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 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, so that's 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 those Sears rewards into account, it was very profitable, like effectively make a money printer that was making 50 cents on every dollar that you put into it. A 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, some of my favorite crazy story is the Wii U Sears 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 6 months ago. 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 had Diamond status on Delta for a decade, 1K on United for 5 years, Executive Platinum on American for probably 4 years now. I've had high at Diamond and Globalist status for years, marrying on top to your 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 and some of it is through organic travel, but for the most part it's from promotions or credit card spend. 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. It's I love to travel, I love to be in a new city, I go at least 3 or 4 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, I 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 3 weeks from now, going to Sydney, I booked that in a couple of days ago with my Alzheimer's 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 5 star hotels that frankly I'm not paying money for, which is also amazing, and I'll fly back, be pampered again, and give me a perspective on the world while I'm there. 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 signup 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. 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, well, probably close to $350,000 in stockpiled gift cards and redeemed all of those, but I don't know, VGSH, which is short-term securities by Vanguard, I held that 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 would end up losing the money for it, and doubled or tripled that volume. I think it's also helpful to think about these moves as being like examples or prototypes, 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. For the last six or seven years, Target has offered 10% off of gift cards up to $500 out 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 out of all of the single transaction, put them in your pocket, go back in line and get 10 more and keep doing this until they kick you out of the store, and of course, they're 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 has tied to a phone number, and scaling it's quite a bit harder. But Black Friday tends to bring out things like that. One of the note on those target gift cards is the resale rate for those is usually somewhere between 90 and 92%, and it typically drops around one target, those are the 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 Phenys value or excuse me, at the value you paid, or perhaps even for a profit on top of all the credit cards spend and credit card rewards you earned. 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 would say my threshold for a major play is probably something I can earn $50,000 or the equivalent miles out. 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. 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 bank role. My background career-wise, I was a software developer, eventually an engineering manager, and then chief scientist for a big company. That paid well, but also boring in a time suck. The pay that I got from that does very much go into what my bank role was five years ago, and that bank role accelerates on itself to turn into what I have now. 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. There is a bank that's in the 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 run a $3,000 charge, and then within two or three hours you'd have $3,000 more in your bank account. 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. Somebody wrote automation to go in and cause our credit card to be charged over and over and over again, and we're talking like two to three times a minute. The game became what credit cards will let us charge a ridiculous amount 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. 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 VCR master card, so not only did we have to find a friendly charge card, we had to find one that was a VCR master card, and charge cards just aren't a common product. So, 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 his, the bank saw this going on, and they froze everyone's accounts. But this bank also only technically allows you to have accounts if you're in their geography, and I was in their geography, and they're 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 it definitely, so 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, said if you ever be doing things, 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 month's long battle to get that money out of those accounts. Mine still exists, I can log in and use it right now. Lots of marketing is based on offering something that's kind of too good to be true, and then attempting to throw up our 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. I tend to think of legal ease when it comes in terms of 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 how they define what a person is, and does a person to the 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 put 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 ten apartments, would that look like ten different addresses to a promotion, or would it look like one? So I like to take in terms of conditions that very much face value, and look at how you might wiggle around when they use a word like address or person, or limit. 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 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 gaining, and what sort of things might I not think about, and what other holds might I leave so that I can find a way in through some of those other backdoors. 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? Again, something has to be legal for it to pass my master. 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 I have a lot of MX cards, and I keep getting new ones, and MX 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 point sign up bonus, close that card a year later, and open it again and get another 110 point sign up bonus, do that on repeat, and then do that time's 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. 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, great areas are great for a reason. 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 this right face that no, this is not fraud because X, Y, and Z. I don't know if you've ever gotten an offer on a credit card, and it's something like, spend $200 at a Caesar's property and get $50 back, and it's like, well, I would have to be pretty desperate to pay to stay at a Caesar's 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 Caesar's and then get a refund, but a refund in a different amount than the original charge, maybe in a way that MX 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. I try, 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 10,000 miles when I book on KLM, then I'm likely to do that, and I do buy seed 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. 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 will call screw ups. 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 signed the same, scanned the same gift card twice. The second time it kept erring out because it had already been scanned was the issue. 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 locked 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, never. It sucks. I can move on. It's not worth, in my mind, going back and trying to talk, 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. 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. A credit card company might not like a rapid increase in spending. The thing about crossing lines like that is that you're not going to know until it's too late. It's wandering around a dark room, just waiting to step on a Lego or run into a door. Matt says he doesn't really stress shutdowns. 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 which to talk Kansas and I don't ever go to which to talk Kansas. Let him 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. Here's a whole ecosystem of market makers for things like gift cards and electronics. You buy an Xbox with a 20% discount or in the credit card points and then resell it to someone who is also going to resell it. The interesting thing is that market making is known to be a very tough business, kind of wherever it's tried. 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 Open Door 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't 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. 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 that have federal regulation and protections around them. But when I'm dealing with the 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 paying threshold. And then I deal with scale by diversification through multiple parties on the assumption that this you won't have four parties all fail at the same time. That said, I've never been part of a failed buyer's group or failed gift card reselling group. 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 manufacturers 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. So the automation that I tend to use is almost always browser based automation of us 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 where they have a website. And that's how customers interact with them. And therefore the automated scripting necessarily has to go through those things. 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. 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. 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. 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 check, 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. They're bill payment services that will happily take a credit card from a company charged 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. 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 and private Slack channels and websites like Doctor of Credit. DOC tells you everything from which banks will take a credit card as a deposit to where to buy discounted tidepods. I mean, that's a pretty wide range. But the comments that Doctor of Credit have incredible information like go to this currency trading website, do exactly these things and get $500. Matt says that you can learn even more if you read between the lines. So I will say Doctor of Credit does look low level 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 credits and doctor or 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 that 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. 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. 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 or 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 your bound to find something. The reading will help you know what to look for and help you learn to site, 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 me or go. 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 and paying at a grocery store in order to earn and 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 the 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 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 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 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 to get some practice. 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're an empiricist. It sounds trivial and yet this is an incredibly effective way 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 the 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. 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 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 in 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 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 the first look. 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 the 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 I just stay private and on the other hand it's really helpful to be part of a syndicate but how do you find collaborators? It's hard because if you share a play the right kind of high EV high return play it's 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 understand but that's not my real goal my goal was to build that network and have the collaboration. 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 chasing and how do all of these offers compare to their historical highs you don't want to sign up for a new card and unusually low offer and then what special offers are available on each card they might each have 100 different marketing offers that range from spend $800 at Dell and get $120 back to save $3 at Jimmy johns 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 a lot of it is in my head a little bit is in notes and spreadsheets and other places I 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 potential when you're collaborating with the right people and you tend to collaborate over telegram or I messages or slack or something in today's world so if you forget the details on something you go what we're 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 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 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 US man with the credit card and taking into the bank no fees and that area is 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 are 100 bill payment services and they were all gameable in some way and now most of those have died or closed out their little polls and I'm sure that we'll get to a point where that was the time of the 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 to make a product usable so it's out there will always be something out there 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 not fraud right there is no clear underlying morality in these things and what's more is that the offer itself needs to be usable by the target customer so just from a game theory standpoint it's not optimal to lock down every offer 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 a hundred Starbucks gift cards to give to their clients I 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 ten years or 15 when I started until now but they're still not good at it there are they have learned lessons along the ways airlines are less rewarding for certain types of spend than they used to be because they found loopholes but it's very much a whack them all type of game where 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 time scales of months or even a year so to change it is kind of like trying to steer in our craft area 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 though 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 them all and when 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 depends on the percentage of gaming versus the percentage of actual users of our promotion then I think we're going to continue in this current regime. 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. 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 replace the paycheck for me right it helps with my kids through college by 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. 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. 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 manufactures spend and travel hacking are solving the same kinds of problems. I'm always discovering new things. They're 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. 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 a 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. 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. 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 the better but there's something beyond the information which I also appreciate. I like the aesthetic it's a true blog and the bloggy sense of the word it's sparse like an artifact left over 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. 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 band blogger 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. I found Matt when I was looking for a way to go beyond sign up 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. 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. [Music]