This news qualifies as somewhat old, but still worth examining with interest in contactless payments continuing to rise. Payment service Plastiq recently announced a fee increase from 2.5% to 2.85%. Unfortunately, this significantly cuts the value of using Plastiq; however, there are still some scenarios where it continues to make sense.
Plastiq’s Previous Value Proposition
Payment services like Plastiq gained popularity in the points & miles arena over the last few years. That’s because they allow you to charge payments that you must normally pay with cash or check – car loans, mortgages, rent, etc. Thus, Plastiq provides a way to earn those lucrative rewards points for normally ineligible expenses. The catch, of course, was the transaction fee; Plastiq previously charged 2.5%. In general, that still didn’t make sense in most cases. After all, paying 2.5 cents for, say, Membership Rewards points worth 1.5 cents represents a poor deal.
However, there were a couple of scenarios where paying the fee could represent a good opportunity:
- You need to meet a high minimum spend threshold to trigger a bonus, but don’t have enough everyday spend.
- Your card earns 2x points, thus earning more than 2.5 cents of value per dollar.
The second point became particularly valuable for cards like the AMEX Blue Business Plus or Citi Double Cash (if you have another card earning Thank You points) cards. I traditionally value Membership Rewards and TYP at 1.5 cents/point; therefore, buying the points at 1.25 cents each actually does provide surplus value.
Plastiq Fee Increase Means Break Even Value, At Best
The problem now, of course, is the bump in fee to 2.85%. The e-mail I received from Plastiq describes the change as follows:
Recently, several major credit card companies announced an upcoming interchange price increase (the cost of processing a credit card), which directly impacts our costs at Plastiq. This third party increase requires our fees to move to 2.85%, effective July 1, 2020 for most transactions.
Plastiq has historically absorbed the cost of all interchange increases, and we have kept our fees flat. However, at this time, an increase is necessary. We remain committed to delivering quality tools and features, and we’re still priced lower than our competitors.
We continue to improve Plastiq and we’re excited about the launch of Plastiq Accept and our new multi-user feature. Keep an eye out for new Plastiq features and products for your business that are on the way.
Whether you believe the corporate Newspeak or not, the issue here is that you are now paying 1.425 cents per point. I guess that’s still a positive arb, though at .075 cents a point, not worth the extra effort in IMO. The potentially larger issue, though is this: are transferable points even worth 1.5 cents/point at this juncture? Yes, you can still transfer them to a variety of airline and hotel programs. Programs largely unusable at the moment, though, due to travel restrictions. Yes, Thank You Points helped score ANA First Class through LifeMiles, but that’s not an option for the foreseeable future. We also have no idea how many of these programs might survive the current situation. With all that in mind, I lean towards a lower value at this point in time.
Where Plastiq Might Still Make Sense
There are two situations where Plastiq payments might still make sense, even with a 2.85% fee.
You Need to Hit a Significant Minimum Spend Threshold
One such example is the British Airways Visa card, which requires $23,000 in spending in one year to earn the full 100k bonus. That’s a tall order for many just with ordinary spending. Not to mention, the opportunity cost for foregoing bonus categories on other cards. Hitting up Plastiq with the car and mortgage/rent payments might just help get you there.
You Use Plastiq for Business Spend
If you have a (legitimate) business, the value proposition improves somewhat. That’s because if you use Plastiq for business expenses, the fee becomes tax deductible in most cases. Depending on your marginal tax rate, that provides a “discount” between 12% and 37% on the gross fee. If we assume a rate of 25%, the net fee after tax deduction drops to 2.1375%. If you use the Blue Business Plus card, for example, that means you’re purchasing points at about 1.07 cents/point. That’s a very good price, even if you believe points aren’t worth what they used to be.
This assumes, of course, that you’re paying a vendor that doesn’t already accept credit cards without a fee. It pays to double check; I’ve personally found more vendors accepting cards these days in an effort to encourage completely contactless payments.
Final Thoughts
With the fee increase, I’m personally done with Plastiq for now. I just don’t see the value at this price point, especially if you consider transferable points temporarily devalued. I might change my mind after things settle down, though. Meanwhile, I probably won’t recommend that you use the service, either, unless you either have a significant minimum spend hurdle or business spending where the tax deduction helps offset the fee.
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