Points Hacking for the International Entrepreneur

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I see a lot of posts around travel hacking but the majority seems targeted towards US residents which doesn’t really help the non-US nomadic entrepreneur.

 

Background

My situation is that I earn in multiple currencies and I spend in multiple currencies but most of the business costs are USD denominated. That’s a fairly bad thing since I’m quite bullish on the USD medium term (it’s a flawed currency but it’s what people will flee to in the event of a crisis).

I’m Australian but no longer resident in Australia. For the typical Australian, you’d only have AUD based credit cards which is of course normal. This is very costly if you run an Amazon business in the US and/or UK because Amazon will convert your currency for you and they will always give you shitty conversion rates. And then you have to reconvert your AUD back to USD in order to make purchases in China. That’s a lot of friction costs (over 5%) for such a simple transaction. Further, most Australian banks are very nationally focused and have hefty fees if you involve foreign currencies. So you have to use a third party foreign exchange service to do the outbound USD transfers.

As a result, a lot of people outside of the US are using Payoneer where you get a card and you can receive funds in USD with fees starting from 1% of funds received. Looking at my own USD account with Payoneer, it looks like they use Bank of America and First Century Bank to receive funds. They seem to be popular with Amazon sellers as well as Upwork freelance workers.

The other alternative people are using is Worldfirst which provides similar services but they don’t provide cards (and they don’t seem to be looking at introducing them yet). You can use them to make payments to suppliers in USD or to withdraw payments to your own non-USD accounts at much better exchange rates. Their fees are a bit on the high side. The fee is negotiable depending on the volume and size of transactions.

 

Opening an Account in the US of A

I don’t particularly like any of these options since I wanted closer to 0% friction costs (who doesn’t, right?). So I flew to the US and opened a Chase bank account which in my opinion is one of the stronger banking institution. Of course you can argue that flying to the US specifically to open a bank account is in itself a frictional cost. But then again, if you were already going there to attend some event, then it’s not that much more effort just to stop over at bank there.

That brings me to the point of this article on points hacking. After building up some credibility in the US, I managed to get a credit card with points. There’s a big battle between the banks to get credit card users and they’re offering more and more incentives to get credit card customers. I remembering hearing on the Planet Money podcast about this one lady on low income taking advantage of all these incentives by carefully selecting the cards, reading through the fine print and cancelling the cards after she’s done with them so that she gets all of these free trips to Disneyland with her child and tons of other freebies. The best cards for rewards in my opinion are Chase and American Express but I’m sure the travel hackers will say it’ll depend on which airline program you’re a part of. For me it’s just about converting it back to cash credits. After I signed up and spent the specified minimum, I got $500 cash back on the card. I’m sure the banks are making a loss on customer acquisition and perhaps the credit card debt is a bubble in itself but that’s another subject altogether. The great thing now is that whereas in the past only Amex offered the best rewards system, now a lot of Visa and Mastercards are equally competitive.

When I’m in the US, using the card is great because you get extra points on travel, hotels, uber etc. When I’m not in the US which is the majority of time, I’ll get points on USD bills that can be paid by card and suppliers that want to get paid by PayPal and don’t add a fee for doing so. It’s not worth it if the supplier asks you to pay an additional 4.5% for PayPal fees. But if they quote you the same price for both T/T and PayPal, it just makes way more sense to pay via PayPal that has the credit card with points attached. With most cards, it works out to being 1% cash back on these. If you’re doing retail arbitrage or wholesale in the US, then these points will add up big time. I ran into one guy at an Amazon related conference that had racked up about $55k just in reward points. I think he’s been saving it there just so he can show others. I tend to redeem quite frequently since the value of the points is purely on the whims of the banks. I hold the same policy for frequent flyer miles since airline companies can depreciate the value of your reward points.

 

Banking in the US

Before you buy your ticket in the US, beware that things have tightened up. Perhaps after Trump they will revert back to being the Wild West and allow non-residents all kinds of financial products. But probably not. In any case, you’ll need to do your own research since currently it is more stringent and they may do extensive due diligence or just flat out turn you away. If you’re an American going abroad to open a bank account, you can forget about it. After FATCA, it has just stopped making sense for most banks to go through the hassle and they will for sure turn you away.

The good thing about the US is that once you have your “in”, capital markets are much deeper there and gaining access to credit is generally easier than elsewhere in the world. And of course, the perks you get from all the reward cards, store cards and credit cards not to mention cash back programs can really add up, especially if you’re in the retail arbitrage business.

 

Banking in the UK

After the US, the next most liquid financial markets is probably the UK. Though who knows if it will still be the case after Brexit and how much business will actually stay in the City of London. I wanted to see whether it was possible to duplicate the process from the US to the UK and it is possible, just it’s harder and took quite a bit longer to do. But it’s worth it and the cash back percentage is similar.

There are Amazon sellers doing retail arbitrage in the UK which apparently is surprisingly profitable, just it requires a fair amount of ongoing work both online and offline. The savvy sellers in the UK are using cash back programs like Quidco where the cash back percentage can be as high as 15% depending on whether the retailer is running a special but there will always be at least a few percent cash back plus whatever points you get on your card.

 

The Ideal Scenario

I think the best set up to have is figuring out what currency denomination the majority of your costs are and getting cards with rewards in that specific currency. The more developed the country, the more likely it is that there will be a way to get credit cards with rewards there like the US and UK. The business will obviously need to reach a certain stage otherwise 1% of a small amount won’t be enough to justify the hassle and expenses involved.

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