Why Do Rotating Category Credit Cards Exist?

I have a Discover card with rotating categories, and while it’s a pain to remember which category is “in” at the moment, I understand that I can earn more cash back by using it at the right times.

What I’m really wondering is: what’s the benefit for Discover or other companies that offer these cards? More cash back seems like it could hurt their profit margins. Do they rely on people using the card in the wrong categories? Do they get some kind of kickback from the categories they choose?

I get that offering more cash back can attract customers, but clearly, they can’t make money by giving 5% cash back on everything without fees…if they could, they’d offer it and we’d all jump on it.

If anyone has insights into the economics behind this, I’d love to hear them. Thanks…

They want you to set that card as the default payment method for specific categories (like Walmart or Amazon) and keep it as the default even after the 5% cash back period is over.

Bank of America Customized Cash Card: gives cash back 3% on one category that you choose from a list (gas, online shopping, cable, internet, phone, streaming, dining, travel drug stores, home improvement). Plus gives 2% on groceries and wholesale club.

Citi Custom Cash Card: gives 5% cash back on one category you spend the most money on from a list (restaurants, gas stations, groceries, travel, transit, streaming, drug stores, home improvement, fitness clubs, live entertainment).

U.S. Bank Cash Plus Card: gives cash back 5% on one category that you choose from a list (restaurants, gas stations, groceries, travel, transit, streaming, drug stores, online shopping).

Or just get a 2% cash back card to keep it simple and call it a day.

So you get the card, spend in that category, and forget to stop using it when they change that % bonus

I remember the categories easily because I like to play the game. For my husband, I buy little stickers for the credit cards each quarter so he knows which card to use.

What frustrates me even more is that with Citi, I have two Custom Cash Cards, so I can have two 5% categories, along with a Double Cash 2% card. Why can’t they just give me one card with two 5% categories and 2% on everything else?

The categories usually don’t give kickbacks, but individual merchant offers do. They want you to use the card often and hope you’ll use it for purchases outside those categories.

If the category is specific, like McDonald’s, PayPal, or Amazon, it’s a special deal between the bank and those companies. Overall, it’s just a way to encourage you to spend more by introducing you to new categories.

Credit card issuers aren’t focused on creating the best card for you. They issue cards to make money for themselves and increase profits for their shareholders. They “train” cardholders to use their card more often than others to achieve this.

Of course they do. If everyone only charges 5% category on those cards and nothing else then they will be at loss.