Wednesday, June 25, 2014

Monthly Manufactured Spending

I just got back yesterday morning on a 12 hour red-eye flight from Israel. Needless to say, I'm a bit off my regular schedule, so I decided to take a rest from travel related stuff and talk about credit cards for today's post.

Sometimes our friends wonder how we generate so many frequent flyer miles and hotel loyalty points. Well, I don't have any fancy things nor eat at 5 star restaurants, so it's not from regular spending. In fact, there's a well known tactic called "Manufactured Spending" where it looks like you're spending money on your credit cards, but you're actually not spending anything.

I've discussed it before a few times (here and here), but I figured I'd go into my parents' actual monthly routine in case it's helpful to others.

Tactic #1: Amazon Payments
Every calendar month, Amazon Payments will allow you to send up to $1,000 to anyone else with an Amazon account. It's the same log-in as your regular Amazon, but it's a separate product that's supposed to compete with Paypal. But since they're not Paypal, Amazon wants to attract customers by allowing someone to send up to $1,000 each month without any transaction fees. Paypal charges about 2.9%. plus $0.30 each transaction using a credit card.

So my mother (Person A) can send money to my aunt (B) for babysitting me the other week. Then my aunt (B) can send her friend (C) money for dinner last weekend. Then the friend (C) can send my father (D) for helping them move apartments.

1. Now, imagine that every transaction was exactly $50.
2. Then pretend that no services were actually provided.
3. Now change that $50 to $1,000.
4. Extrapolate this over a full year.
So now, you have A-B-C-D where A and D are basically the same entity for practical purposes. Everyone's net neutral at the end of the day, but as far as the credit card companies are concerned, they all "spent" $1,000/mo and earned 1,000 points or miles a month.

Final tally: $12,000 a year of manufactured spend per person - when in fact, everyone's $0 out of pocket at the end. For each person, that's a free 12,000 Starwood points or $240 worth of Barclay Arrival miles for a few clicks each year.

Of course, Amazon doesn't like being used (since they eat the credit card merchant fees), but this scheme is all legit - unless you send A-B-A. That's a clear faux-pas. So don't A-B-A-B.

Tactic #2: Amex Serve
A few months ago, we were talking about how great the American Express Serve card is for the 10 million unbanked individuals in America (as well as a few clever points/miles enthusiasts). However, a week after that posted, CVS decided to go Cash Only for Serve reloads.

Fortunately, Serve still had the monthly ability to load $1,000 online via credit cards ($200/day up to $1,000/month). As long as the source credit card had the same primary holder as the Serve card, then for 5 days each month, you could send $200 from one card to another and get a free 200 miles/points for doing so. Again, extrapolate to 5x a month, 12x a year and you get to $12,000 annually.

But unlike Amazon Payments where you had to wait for someone to pay the money back to you, Amex Serve gives you full control. Now with each of our Serve cards loaded with $1,000, we can then use the great Bill Pay feature to send that money to pay off bills such as medical expenses, car insurance, and even your monthly credit card statements!

Think about that for a minute. My father uses his Chase credit card to load $1,000 onto his American Express Serve. Then from Serve, he sends a $1,000 bill payment to Chase to pay off the original credit card. Meanwhile, he's earning 1,000 points along the way. There's truly something poetic about it all.

Of course, in reality, my father's too clever paranoid to have the cycle be so clean and easy for anyone to easily figure out. He's more likely to use his Chase credit card to load Amex Serve. Then use funds from Amex Serve to pay off his Citi credit card. Similar to Amazon, avoid the A-B-A patterns.

Further, in the small business my father helps manage, Five Star Painting IL, we can have our employees get cards and deposit their monthly paychecks into their Serve accounts.

Tactic #3: Google Wallet
And since nothing on the internet can be successful without Google wanting a piece of the action, here comes Google Wallet. What is Google Wallet? We'll, let's play a little analogy game.

Google Plus : Facebook :: Google Wallet : Paypal

If you're a nerd who took the GMAT for business school, then that probably made sense to you. For the rest of us, Google Wallet is their version of electronic payments system (Paypal or Amazon Payments).

The only difference is that Google's too smart to give away the goods. So they cap the amount of Free Sending to just $250. Not a month. Not a day. $250 TOTAL. Forever.

Of course, there are some clever parents out there that realize that you can have more than 1 gmail account. I mean, there is and and Each one can send $250 without any fees. Not a life-changer, but better than a sharp kick to the diaper. 

Now, to be clear, my parents definitely don't go overboard with this tactic. Maybe one unused email address every 3-4 months. Again, try to avoid the A-B-A patterns (and any other obvious patterns that the geniuses at Google with their billions of cash and IT would figure out).

Tactic #4: Paypal
Despite mentioning Paypal multiple times, I bring this method up last, because (a) it's the company most likely to shut you down and (b) it involves a fee.

Paypal is very vigilant about any type of transaction activity that it (in its sole discretion) deems questionable. Now, to be clear, there's no actual law being violated by Manufactured Spending. But very similar to counting cards at a Las Vegas casino, there are a lot of people who don't appreciate it and will ask you to take your business elsewhere. Paypal is like that.

Quickly loading up your Paypal account with Cash Reload Cards ($3.95 fee per card) is the best way to rack up a lot of credit card spend to earn your miles/points. But Paypal caps you at $4,000 per rolling 30 day period.

However, quickly unloading your account (bank withdraws or even sending too much to anyone else) - especially right after loading up - raises a lot of red flags. I mean, isn't that what a malicious credit card thief would do also?

Additionally, each $500 load (assuming you're smart enough to max out the card) costs you $3.95 in activation fees. So unlike the other tactics which are 100% free, this maneuver costs you a bit (0.8% seems small until you realize it's almost half of your points haul). Assuming your points are worth 2 cents each. Multiply that by $503.95, and you'd get $10.08 of gross points value. Subtract out the $3.95 and you're down to $6.13 of net value.

This method works a lot better when you have a 5x card like my mother does, but still, no one likes paying extra fees.

So there you have it. Each year, if you followed these simple strategies and kept yourself off the radar, then you'd rack up each year:
  1. Amazon Payments ($1,000/month per person) = 12,000 points
  2. Amex Serve ($1,000/month per person) = 12,000 points
  3. Google Wallet = $250 x 3 times a year = 750 points
  4. PayPal = $4,000/month per person less $31.60 in monthly fees (8 cards x $3.95) = 48,000 points less $379 in fees
Even if a single individual only did #1 and #2, they'd end the year with a free 24,000 points.

If those were Starwood points, they'd be able to get either:

W Vieques in Puerto Rico
A. 1 free night at a high end 20,000 pt Category 6 hotel (such as the W Vieques in Puerto Rico); or

B. 2 free nights at a very nice 12,000 pt Category 5 (such as the Westin Riverfront in Beaver Creek, Colorado); or

C. 8 free nights at a 3,000 pt Category 2 hotel (such as the Aloft Cancun in Mexico).

Depending on the hotel's prevailing seasonal rates, that's anywhere from $480-720 of value in the form of free hotel nights. 

Now imagine if there were 2 adults in your household. That's 48,000 points a year between the 2 of them. And imagine they used their Chase United Airlines or Citi American Airlines cards earning frequent flyer miles instead of a hotel card. Then between the 2 people, they'd almost have enough for a free round-trip ticket to Europe or a two round-trip tickets anywhere in the 48 United States. That'd be worth anywhere from $750-$1,500!

All for $0 cost and a few minutes each month of clicking on the internet.

Tomorrow, we'll discuss the options of earning Hotel points vs. Airline miles as your preferred loyalty currency of choice.


  1. Hi,
    I read your travel story on mommypoints and that led me here. I've heard all these years about mileage credit cards but never paid attention until 2 days ago :O
    Now we want to get a few credit cards to build mileage and don't know where to begin. Still lots of questions. I'm korean and my husband is American and we plan to go to Korea for a few years later this year. Is there a email address that I can send you with a few questions? Or sections where I can post some questions? I've been reading all those mileage related blogs and my head is spinning lol... I guess first question is how do you all keep accumulating points after you get sign up bonuses? I see manufactured spending (still confusing some) can work but those are either 1 or 2 points per dollar. Do we need to continuously open a new credit cards? With hotel cards, any hotel cards that can convert to mileage points? I am a coupon savvy so I should understand this once I get all the facts down (I hope!). Thank you.

  2. Thank you so much!
    I'll send you an email shortly.
    BTW, your daughter is so cute!!!