Erosion of the PerkStreet Model
I know it may not seem like it from the title, but I actually am a fan of PerkStreet (a sponsor on this site). It is by far the best debit rewards card program out there offering 2% back on all purchase with various rotating rewards in the 5% range. If debit rewards are your game, this is the card for you. I also think their marketing and customer service are tremendous. When readers have shown up in the comments section of my reviews (PerkStreet Review Part 1, PerkStreet Review Part 2, and PerkStreet Review Part 3 – Management Speaks), PerkStreet employees actually respond and try to resolve the issues. So, why this title? Because of my $5,000.
One of the primary issues I've talked about before is how PerkStreet requires you to have $5,000 sitting in your checking account paying you 0% interest in order for you to get the 2% back on your debit card purchases. For the time being users of PerkStreet have few other viable options to gain interest on this money that they obviously want to remain liquid (else why put it in a checking account?). However, at some point Ben Bernanke will stop being PerkStreet's best friend and will stop artificially keeping down interest rates. When he does that, banks EVENTUALLY will start raising their deposit rates. Checking accounts will begin actually paying interest again, and the PerkStreet rewards model will begin to look less attractive to consumers who will want to take their $5,000 and start chasing the better rates again. With less $ in their PerkStreet account, consumers by definition will be forced to spend less (since it's a debit card we're talking about). Additionally the incentive to spend drops by 50% because with less than $5,000, you only get a 1% reward on your purchases. This less cumulative spending means fewer purchases which means fewer merchant fees/card swipes for PerkStreet which has to be where they're getting the bulk of their profits (aside from the fees) since PerkStreet doesn't make loans. I'm not sure how PerkStreet will handle this situation, but they're smart guys, and I'll be curious to see how they respond.
What do you guys think? Am I missing something here?