What happens when there’s no more credit card rewards for GrabPay top-ups?

Late last week, the IUCN updated its list of critically endangered species. At the top of the list:

1. Hawksbill turtle
2. Amur leopard
3. Sumatran rhinoceros
4. Recording devices at SCCCI events
5. Points for GrabPay top-ups

What’s the difference between the hawksbill turtle and points for GrabPay top-ups? The turtle has a greater chance of surviving 2020.

The current state of affairs

Back in December 2019, AMEX and Mastercard changed the MCC for GrabPay top-ups to 6540. 6540 designates a stored value facility, which meant a whole swathe of cards ceased awarding points or cashback for top-ups overnight.

In a way, this just continues the general trend we’ve seen over the past couple of years. One by one, banks have either explicitly or implicitly excluded GrabPay top-ups from earning rewards.

Off the top of my head, the DBS Woman’s World Card did away with this at the start of 2019. The BOC Elite Miles World Mastercard followed a couple months later. UOB killed it on the PRVI Miles Mastercard and AMEX on 30 November 2019 (jumping the gun really, because of the MCC changes in December). Come March 2020, we’ll lose rewards on the UOB One and American Express credit cards.

As it stands, the only cards that earn points for top-ups will be:

• General spending, Visa cards (e.g DBS Altitude, Citi PremierMiles Visa, OCBC VOYAGE)
• Very limited specialized spending cards like the Citi Rewards Visa, HSBC Revolution, and Maybank Horizon, all with caps

Now, it clearly makes sense to use a specialized spending card to top-up your GrabPay account. After all, that’s how you turn a general spending situation into a specialized spending one. You normally can’t earn 4 mpd at the dentist, but you could by topping up your GrabPay account with the Citi Rewards Visa and paying with your GrabPay Mastercard .

But it can also make sense to use a general spending card to top-up your GrabPay account, in certain cases. Perhaps you’re at a hawker stall which has a GrabPay QR code but no other cashless payments. Perhaps you’re making an insurance or government payment which will not earn any points on your credit card. Topping up your GrabPay balance with a credit card and then spending it allows you to at least earn some rewards on these transactions.

In any case, GrabPay and credit cards are not either/or propositions, for now. That’s to say, I could earn both credit card points for topping up my account, and GrabRewards points when I spend my balance.

What happens when the music stops?

GrabPay and credit cards are not either/or propositions for now, but it’d take a brave man to predict the status quo continuing.

At first glance, it may seem confusing why banks are cutting off points for GrabPay top-ups. After all, unlike charity or government entities, Grab doesn’t enjoy a discounted MDR (merchant discount rate) on its transactions. The bank still earns whenever customers use their cards for GrabPay top-ups, so what’s not to like?

But there’s much more to a transaction than just the MDR. Data is equally valuable, if not more so. When you spend on your credit card, the bank collects information about your spending habits and preferences, which can be used for targeted promotions. You like to spend on dining? Great, we’ll push you additional dining deals. You frequently use your card overseas? OK, here’s an offer for travel insurance.

When you use your credit card to top-up a GrabPay account, all the bank knows is that you really like GrabPay. It’s a black box, and the bank loses out on data it would otherwise be collecting.

Moreover, the general principle for banks has all along been to award points for retail transactions. Topping up a prepaid account (even if it’s subsequently used for retail spending) doesn’t count, so a better question might be “why have banks awarded points on GrabPay top-ups for so long?” (not that anyone minds, I’m sure)

Therefore, points for GrabPay top-ups are living on borrowed time, and when the music stops, I don’t think it’ll bode well for Grab.

Here’s a thought experiment: Imagine that one day, all the banks stop issuing any sort of rewards for GrabPay top-ups. No miles, no points, no cashback, whether you’re using a generalized or specialized spending card.

Suppose you’re at a merchant which accepts credit cards or GrabPay. What would you do?

Well, you’d ask yourself: What do I get when I spent S$1 on my credit card, versus through GrabPay?

As you can see, the math does not favor GrabPay. With a credit card, you could earn anywhere from 1.1 to 4.0 mpd, depending on the merchant and card. With GrabPay, you’d earn 0.53 to 1.14 mpd until 2 March 2020, then a paltry 0.21-0.46 mpd after thanks to the upcoming GrabRewards devaluation.

All this while, GrabPay has been a beneficiary of the banks’ willingness to extend rewards to top-ups. If I can double dip on credit card and GrabRewards points, why not?

But take away the double dip, and it’s not even a contest- from a rebates point of view, there’s no compelling reason to use GrabPay when credit cards are also accepted.

The only exception is a scenario where GrabPay earns points, but credit cards don’t. GrabRewards has its own list of exclusion categories, but for the moment it still rewards certain transactions that most cards don’t, like government and education payments. I imagine the GrabRewards exclusion list will grow wider over time, so we may see this advantage eroded away too.

What can Grab do?

Where does that leave Grab and GrabPay?

GrabRewards is simply not strong enough to take on the bank rewards programs, and things will only get worse from 2 March 2020 when the GrabRewards devaluation comes into effect. With earn rates getting slashed by up to 60% and award prices hiked by almost 40%, any reasonably-informed consumer would think twice about using GrabPay.

It follows that Grab needs to dramatically enhance the value of GrabPay should all double dipping opportunities be nerfed. I assume they’re not backtracking on the devaluation, so could we see…

• Grab offering bonus credits for top-ups, e.g S$105 of value when you top up S$100?
• Grab offering bonus points for top-ups, e.g 100 bonus GrabRewards points for a $100, top-up, on top of points from spending said balance?

Grab’s actually tried the former before, back in 2017. It has to be said that GrabPay usage has grown exponentially since then, so this would presumably be a lot more expensive to implement now. The latter model was a favourite of the now-defunct Mileslife, which saw it as a way of building up working capital and locking in future patronage.

Word on the street is that GrabPay recently increased its merchant fee from 0.8% to 1%- could this be a precursor to more incentives for GrabPay usage?

Conclusion

It’s a bit telling that 1 out of every 5 questions I get is “Does Card X earn points on GrabPay top-ups?” Such is the attractiveness of double dipping opportunities, and the uncertainty that they’ll continue.

For now, there’s absolutely no reason not to use GrabPay. The GrabRewards nerf will destroy a lot of value, but it’s still something incremental on top of credit card points, the icing on the cake if you will.

The bigger question is what happens when (and it is when, not if) banks decide to close shop on GrabPay top-ups. What’s the use case for GrabPay then?

Make hay.