Source: Business Times © Singapore Press Holdings Limited. Permission required for reproduction
[Edit: Here’s the original article for those of you who don’t have a subscription to the BT. Cost me $72.76. You’re welcome]
Download (PDF, 6.23MB)
Well, that escalated quickly.
When the Krisflyer UOB account was first announced, I, like many other people in the miles and points game, was very excited. The 5.4 mpd figures they were throwing about were head and shoulders above anything currently offered in Singapore. The idea of a bank account that let you earn miles was something new and potentially gamechanging- if they could get it right.
But then the full details came out, and that excitement turned to disappointment. If you wanted to earn that 5.4 mpd, you’d have to park at least $350,000 in a bank account earning no interest. Your miles earning would be capped at 5% of your bank account balance, meaning that once you spent beyond a certain amount, you’d earn 0.4 mpd instead of the headline 5.4. The trumpeted benefits with Scoot and Tigerair came with so many strings attached they might as well not be used. And to top it all off, the headline rates were promotional only, with no guarantee of renewal.
I doubt I was alone in my disappointment, because the post I wrote went on to blow up in a big way- 23K+ impressions on Facebook, which is something of a record for this site. To put it another way, the Krisflyer devaluation was huge, but that only bumped about 7.5K.
And it’s not just me. The laojiaos on HWZ (who know much more about all this than I do) are also cheesed off. Coverage on other sites like The ShutterWhale has similarly been negative.
I guess that’s made UOB sit up and take notice, because it’s come out to defend its product in a Business Times article published today. (I’m quoted in the article but was not contacted directly by the journalist) Unfortunately, the article is behind a paywall, but I’ve purchased a copy that I’ll share as soon as SPH emails it to me.
The sad thing about UOB’s response is that they’ve completely missed the point. The UOB Krisflyer account is supposed to be for those people who want to earn Krisflyer miles. If that’s the case, why is it so bad at what it’s supposed to be doing?
Let’s go through the points that UOB made one by one.
“While UOB did not dispute the calculations in the post, it said that the Krisflyer UOB account combines a debit card and current account to award air miles, designed for millennials and frequent flyers on the insight it has into their lifestyle, spending and savings choices.
“Our consumer insight tells us that this account, which has an accelerated earn-rate for Krisflyer miles, will be attractive to those who would rather have free flights instead of earning interest,” said a UOB Spokeswoman
Ah, millennials. That nebulously defined group of people about whom marketers seems to know so much. I’m a millennial, and I often wonder why every single article I read about me doesn’t seem to describe me at all.
UOB said at the launch of this product that “the account provides millennials in the early stages of their career who may not be eligible for a credit card to accumulate KrisFlyer miles”
If that is an important pillar of the value proposition, we need to examine it closely. First, what exactly is a millennial? I assume in this context they’re talking about a fresh grad, young professional who just entered the workforce. What would that person look like?
The median graduate from SMU/NUS/NTU would be drawing a salary of S$3,360 a month, as per this ST article. That’s well within credit card eligibility territory. Even if you were suay enough to pick the degree that has the lowest starting pay (SIT DigiPen Bachelor of Arts in Game Design – $2,490), after your annual bonus you will almost certainly be able to hit the magic $30K mark that opens up credit cards.
Suppose you’re a Poly grad- what then? You’d still be well within the income requirement needed for a credit card. Take a look at these MOM-published starting salaries for poly folks
Download (XLSX, 38KB)
A post-NS poly grad would pull ~S$2.3-2.5K per month, which after a 13th month bonus would still be enough to get a card.
Therefore I can’t understand the claim that this product is somehow opening up the miles earning world to “millennials”, if we define the word that way. Sure, a new graduate would not be able to get a UOB PRVI Miles card (S$80K min income), but as we shall see in the next section there are many other good options available.
With the Krisflyer UOB account, customers with a monthly average balance of S$20,000 and a monthly spend of S$1,000 would, over one year, be able to earn the equivalent of a return trip to Bali on Singapore Airlines”
Let’s look at this hypothetical person that UOB describes, with an MAB of S$20K and monthly spending of S$1K. With UOB’s Krisflyer account, you’d earn 16,800 miles over the course of a year.
If you spent that same S$1K a month on an entry-level credit card like the DBS Altitude (min income: S$30K, 1.2 mpd on general spending), you’d be just 3K miles short of the 15K needed for a return trip to Bali on SQ.
But if you spread your S$1K monthly spending intelligently around two DBS cards (just two! I’m not going to propose my usual crazy 5 card strategies here) and spent 30% online (DBS Woman’s Card, $30K min income, 2 mpd online spending) and a weighted equivalent 10% on travel (DBS Altitude, S$30K min income, 3 mpd on travel), you’d have 19,440 miles in a year.
What I’m trying to show is that with a little bit of planning, and only 2 entry-level credit cards, you’d get that trip to Bali, plus you’d be able to put that S$20K to work for you in stocks, bonds, or any other investment that earns a non-0 interest rate. Millennials like planning, right?
Even if you do not qualify for a credit card, a secured credit card is still an option. A secured version of the DBS Altitude card can be obtained by anyone aged 21-70, with a minimum S$10K pledge to the bank.
Your S$10K would not earn interest, but
- It’s still better than not earning interest on S$20K
- You would earn 1.2 mpd on general spending (2 mpd overseas, 3 mpd on travel max $5K per month) with no limits
That, to me, is head and shoulders better than earning a maximum 1,000 bonus miles each month under the UOB arrangement (5% of $20K)
So the hypothetical person that UOB describes has much, much better options for earning both miles and interest.
“A bigger spender of S$3,000 a month for 12 months and monthly average balance of S$350,000 would earn 194,400 Krisflyer miles in 12 months which can be redeemed for one return business class ticket to New York on SIA (worth about S$6,200 on business saver)”
UOB then gives the example of a bigger spender with S$3K monthly spend and a MAB of S$350K. This guy earns 194,400 miles, enough to get a return business ticket to New York (184K miles)
Ok, big spender. First of all, I find it hard to believe anyone could, in good conscience, put S$350K in an account earning 0 interest. There surely must be some law against that. The scenario just doesn’t seem realistic to me.
But fine, in improv you’ve got to roll with the situation so let’s see what we can propose for him.
It’s clear that if you’re spending S$36K a year, even if you somehow managed to convert all that into 4 mpd spending, you’d only hit 144K miles. I know that if you intelligently use sites like Kaligo (up to 13 mpd!) you could bump that 4 mpd upwards, but, realistically speaking, you wouldn’t be able to get 184K on S$36K of spending.
But wait! If I were to sign up for an OCBC Voyage Card and take the S$3,210 annual fee offer, I’d get 150K Krisflyer miles (never thought I’d see the day I used this card as a good example!). Then I could sign up for a Citibank Premiermiles card and, assuming I’m a new customer, get 42K miles for spending S$10K in the first 3 months and paying an annual fee of S$192.60.
So all in all I’ve spent about ~S$13K and have 192K miles (vs S$36K and 194.4K with UOB). And I didn’t have to park S$350K in a 0 interest earning account.
This, of course, assumes the person in question meets the income thresholds for both cards (S$120K for the Voyage, S$50K for the Premiermiles). But come on- if you can park S$350K at 0 interest, you’re probably fairly wealthy.
“On the first day alone, hundreds of Krisflyer UOB accounts were opened and more than S$4 million deposited with us,” she said.
That’s great, and congrats to UOB and all, but that doesn’t say anything in and of itself. This is commonly known as argumentum ad populum (thanks, AS profs!), or a fallacious argument that concludes a proposition is true because many or most people believe it.
In any case, let’s examine that claim. She said “hundreds”, so let’s assume 500 accounts were opened (otherwise I’m sure they’d have played it up and said “thousands”). If S$4M was deposited, that means the average account size is S$8,000. Which means that this average guy would be earning 1.4 mpd, assuming he spends a minimum of S$500 a month on the Krisflyer UOB debit card. And the maximum bonus he could earn per month would be 400 miles (5% of $8,000). Which means that once he spends more than S$400, he’d be earning 0.4 mpd. Dude.
“For a customer who prefers to earn interest over air miles, we would recommend they deposit their money into a fixed deposit or savings account to earn interest at the prevailing market rates”
But guys, it’s not a trade off.
On the 12-month promotional period, she said that “this just means that we will review it then to make sure we have a competitive product with competitive miles earn rate for our customers. It does not mean that the bonus miles will end after next year
That’s fair enough. UOB may increase the bonus miles earning rate after a year, they may decrease it, they may do nothing. We don’t know. But that uncertainty is in itself a problem. I guess you could argue that if they change the terms later you could just take your funds out and close the account, and you’d be right, but let’s circle back to a central problem- are you really going to forgo interest altogether?
So that’s my take on UOB’s response. What UOB is missing (deliberately or otherwise) is the fact that if you want to sell this product as a miles churning machine, you cannot have a 5% cap on bonus earning. That’s a complete contradiction.
That said, I am sure the product will be a moderate success because, unfortunately, there are enough people out there who will get giddy about the 5.4 figure and not read the fine print. But to those of you who are reading this, please- there are better ways of racking up the miles. Don’t settle for less.
PS. BT- next time you need a quote call me maybe. I have lots of file photos of myself in speedos you can use too.