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Within Saudi Arabia’s increasingly competitive credit market, a noteworthy trend has emerged among high-frequency credit card users, who leverage reward points across multiple cards to optimize their cash flow and reduce borrowing costs. Financial Strategy or Financial Strain? By redeeming points for cash equivalents, credit card users who resort to this practice effectively lower their net interest expenses, especially if they carry high balances on multiple credit accounts. For example, leveraging SAR 1,500 from Card A to reduce an outstanding SAR 11,000 debt reduces the effective interest attrition since interest charges are typically based on the remaining balance. This internal “credit transfer” via reward points can serve as a form of liquidity management. To analyse this financial behaviour and how it might affect positively or negatively the credit scoring of the credit card user, we draw insights from an academic paper published in 2022 by the National Research University Higher School of Economics. Traditional credit scoring models might not directly record this behavior, as they focus on payment history, credit utilization, and existing debt levels. However, alternative data sources such as utility bills, monthly subscriptions or behavioral analytics can reveal this pattern. The behavioural analytics mainly has to do with social media interactions, since sharing information about employment, education, or lifestyle habits can signal socio-economic stability or unreliable financial behaviour. At face value, the borrower is actively managing their debt by leveraging rewards, indicating an ability to use financial tools strategically. But if the pattern indicates repeated reliance on points instead of cash flow, it might signal liquidity constraints and a credit risk. They might be using points as a temporary fix rather than a sustainable financial strategy, as non-cash resources that might not be available indefinitely. In Q1 2025, credit card finance in Saudi Arabia saw significant growth, with loans increasing by 12.53% year-on-year. This’s compared to %16 surge for the same corresponding period last year. This growth continues a trend of increasing consumer reliance on credit cards, reflecting a broader shift towards digital and cashless payments and evolving spending patterns within the Saudi economy.
Triggering ‘internal competition’ within a bank This practice prompts an internal market dynamic that could reduce the profitability banks actually. This behavior may dilute the profitability derived from interest and fees, as the balances are redistributed rather than paid down through cash flows, reducing the bank’s control over revenue. Balances that are reduced or transferred to other cards may lead to decreased late fees, over-limit fees, and annual fees if consumers close or minimize activity on certain accounts. This financial behavior then undermines the bank’s ability to maintain a stable profit across different products because the activity is driven more by reward optimization than by genuine need or long-term banking relationships. Before reward redemption, the bank's interest income from the two credit cards totals SAR 2,950 annually—SAR 2,200 from Card A at 20% and SAR 750 from Card B at 15%. After the consumer redeems SAR 1,500 in reward points to pay down Card A, its balance drops to SAR 9,500, reducing the interest income from SAR 2,200 to SAR 1,900. The interest from Card B remains unchanged at SAR 750. Consequently, the total annual interest revenue decreases by SAR 300, from SAR 2,950 to SAR 2,650. This illustrates how reward point redemptions can erode interest-based profits. This example also illustrates how the customer incentivises internal "competition" among the bank’s card own products, as s/he shifts balances from one card to another or opt for the card that gives more rewards with the intention to use the points to pay off another credit card. The result is that the credit cards within the same bank compete for the customer’s balances and engagement, and not necessarily with external competitors. |
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