Points chasing: manufactured spending risks, rewards
By Benjamin Salisbury
There are various ways to chase rewards, and some ways gain more points than others. There's double-dipping, where you earn double points by using a credit card and a loyalty card together. There's churning, where you take advantage of sign-up bonus reward offers by opening and closing multiple cards. And a lesser-known, but often higher-earning, method is manufactured spending. But if you choose to go this route, be sure you know what you're getting into, as it can be complicated and risky.
Manufactured spending is a method of using a rewards credit card to buy products that are the equivalent of cash such as gift cards, prepaid cards or money orders. The aim is earn points for the purchase, then quickly turn that purchase back into cash to pay off the credit card balance. In other words, you're creating artificial -- or manufactured -- spending solely to get rewards, then using the product you bought to pay off the credit card bill, or to replenish your bank account.
Manufactured spending schemes
Different schemes for manufactured spending come and go. One scheme that worked well, but has now been closed, was an o2 money card that
you could top up with a rewards credit card, then use to withdraw cash at an ATM. There was an Orange money card that worked in the same way, but issuers removed it, too, over money laundering fears. However, there
are still a few ways you can make it work:
Gift cards: The most common recent
method is to buy gift cards that you can liquidate in various ways. You can buy
gift cards from retailers where you can earn bonus rewards for spending in
specific areas, then transfer
the gift card balance to a bank account. There are two ways to do this.
The first option is to use the Square app, which comes with a credit card reader for your smartphone. You use your credit card to purchase a credit card branded gift card at a shop, earning rewards in the process. Then, you can pay yourself back by swiping the gift card you just bought into your Square, and depositing the funds into a personal bank account linked to your Square account. However, it costs 2.75% per swipe.
You can also do this via Google Wallet. You still purchase a Visa or MasterCard gift card using your credit card, thus earning your points. Then, you can use the gift card to add funds to your Google Wallet account, entering it the same way you would with a regular debit card (open the app, go to "wallet balance" and tap "add money"). Then you can use the use a Google Wallet Card to withdraw cash, which is free. However, each time you use a gift card to load your Google Wallet balance, you will pay a 2.9% charge.
Another option: buy a credit card branded gift card to purchase a cheap money order. However, this is the least reliable way to use a gift card, as the cashier may not accept a gift card. But some people posting on Internet forums say they have been successful with this method if the gift card looks enough like a debit card (and the cashier doesn't ask to see it up close).
Buy and resell items: You can also manufacture spend by buying items via Amazon or eBay, earning the points, then reselling the items. You can link your Nectar card to your eBay account to collect points when you use PayPal, too. However, the drawback with this method is you aren't guaranteed to resell the item for at least as much as you originally paid, so you could end up losing money.
Prepaid cards: If you use your credit card to purchase a prepaid card, you may be able to withdraw prepaid card funds from an ATM, then deposit the cash back into your account. This may be tricky, though, as many stores will only accept cash for prepaid card reloads.
Many potential roadblocks
Manufactured spending in general has many potential obstacles in addition to each method's unique drawbacks. First, many retailers catch onto schemes quickly and close loopholes. Because schemes come and go so quickly, those who ardently chase rewards are reluctant to post current schemes because they don't want retailers to catch on. So, to take advantage, you must be in the know.
Additionally, the methods used are often very similar to those criminals use, and can trigger fraud concerns. Understandably, retailers are eager to shut down any potential criminal outlet, but, in this case, they're shutting down outlets for rewards collectors, too.
The practice also comes with a risk of getting in debt if you spend more than you can afford and can't pay your credit card balance. As with any rewards scheme, interest on outstanding balances will quickly negate any rewards you earn, even if you are bringing them in by the thousands.
Published: 22 July 2015
- Solutions for rewards aficionados in a dwindling rewards state – Many issuers are scaling back rewards programmes as a result of the cap on interchange fees that came into effect in March 2015. If you're an aggressive rewards chaser, here are some ways you can keep maximising your points ...
- Will debit rewards suffer cutbacks, too? – The interchange fee cap that took effect in March 2015 has already caused one credit card issuer, Capital One, to reduce perks. In spite of growing debit use and competition, will debit rewards meet the same fate? ...
- Is this the end of credit card perks? – In March 2015, the EU placed a cap on interchange fees, causing experts to worry that card companies might scale back on rewards programs to recover lost profits. Now, Capital One is the first to put those worries into action ...