The other day I posted about my first experience with Discover’s Apple Pay promotion. To participate in the promotion I purchased an iPhone 6 and was able to successfully use it to buy a couple of items at Staples. According to the terms, I should earn 10% back from Discover on my purchase. I also have the double cashback promotion on my account, so I should also earn another 10% at the end of the year.
In the comments of my post from the other day, several people are having a very heated debate about the safety of purchasing gift cards. Discover has added language that excludes gift cards from earning the 10%, however it remains to be seen how this will be enforced. I have a lot of respect for commenters on both sides of the argument, so I thought I would share my opinions.
To start, here are some of the concerns people seem to have:
- Discover will somehow find out you purchased gift cards.
- Discover will make you show them receipts in order to get the 10%.
- Discover will investigate and shut down your account(s).
- Discover will decide to nullify rewards you have already earned and/or decide not to pay anytime during the next year.
- Discover already changed the terms once to add the gift card exclusion and will do it again.
Discussing the Pitfalls
Lets analyze each of those five points in a little more detail.
Discover will somehow find out you purchased gift cards.
First off, in order for Discover to see what you have purchased, they need to be provided with level 3 data. My Staples purchase from the other day has now posted and this is what it looks like.
This doesn’t guarantee that Discover hasn’t received level 3 data, but it doesn’t look like they have anything other than the purchase amount, etc. In this case it wasn’t gift cards, but I don’t believe a gift card purchase would show any differently. Discover could of course analyze purchase amounts and investigate ones that look like gift card purchases, but I have not ever heard of any bank doing it on a wide scale.
Discover will make you show them receipts in order to get the 10%.
This is the second argument made and one that I don’t necessarily agree with. One commenter mentions that Chase has asked holders of their Ritz Carlton credit card to send receipts proving airline incidental charges qualified for a credit. This did apparently happen, but I think that is comparing apples to oranges. Is Discover going to ask you for every receipt for every purchase? I don’t think so. Could it happen? Anything could happen.
Discover will investigate and shut down your account(s).
The way this goes is Discover finds out you purchased a whole bunch of gift cards, investigates and then decides to shut down your account. Of course any bank can end the relationship at any time, but I highly doubt this will happen unless you do an insane amount of spending. Remember the gift card exclusion only pertains to the 10% cashback. Discover has no rule against purchasing gift cards normally as far as I know.
If you hang around this community long enough you will meet people who have been shut down by just about every bank. If you go too hard and draw attention to yourself, then perhaps you are asking for it. This 10% promotion is capped at $10K in spend, which is only $3,333 per month. That is far from a ton of spending.
Discover will decide to nullify rewards you have already earned and/or decide not to pay anytime during the next year.
I am not a lawyer, but I want to be clear about what I believe to be true. (Personal opinion) Discover cannot advertise something and then decide it isn’t valid. In other words, they can’t say you will get 10% back and then just not give it to you. They do of course have good lawyers and reserve the right to change a promotion, but they can’t go back retroactively and do that. (Once again I am not a lawyer and thus this is personal opinion only.)
So the argument comes back to whether they can prove you purchased gift cards or whether they can make you provide receipts. I simply don’t believe those things will happen, but who knows. The one thing I do believe is that they cannot change the terms for legitimate purchases and those would have to be paid out. I also don’t think you are doing anything wrong by purchasing gift cards normally. It is up to Discover to enforce their terms and make sure you don’t earn the bonus rewards on gift cards.
Discover already changed the terms once to add the gift card exclusion and will do it again.
Update: Richard has said in the comments that the exclusion was added a day or two after the launch.
I actually don’t think this is true. Discover announced the promotion through a press release, but I believe the gift card exclusion existed within Apple Pay from the first day Discover was added. Could Discover have decided to add the exclusion because of all of the attention? Yes that is entirely possible. What is also possible is that the exclusion was always going to be there, but just wasn’t mentioned in the press release.
Will Discover decide to change the promotion again and add more exclusions? Possibly, but that happens all of the time. That is why it is always advantageous to take advantage of deals when they are first rolled out. Companies often learn the hard way when promotions are too generous and try to change them to stop the fire.
Is It Safe to Purchase Gift Cards?
First off, I would never tell you it is safe or not safe. I truly don’t know and everyone’s threshold for risk is different. With that said, there are a lot of stores that take Apple Pay. You may not need to purchase gift cards if you don’t want. Many grocery stores take Apple Pay, so you could use your Discover card for 20% off groceries. The holidays are coming up as well. I am sure a lot of people will have thousands in actual spending and 20% off is good.
I haven’t decided if I will purchase gift cards or not, however I don’t believe Discover will be cracking down on the average person. There simply isn’t a huge precedent for it on a wide scale, but of course anything is possible. Remember though that Discover has already limited their losses per account with the $10K spending limit and as I said above, I don’t believe Discover excludes gift cards in their general card terms. The worst they could do is just not give you or take away the bonus.
Alternatives to Gift Cards
If you don’t have a lot of spend to do, a great alternative is reselling. That is of course not excluded and Staples has a great price match guarantee. When you are starting with a 20% advantage, many deals suddenly start to look good. Even if you break even on the retail price that you paid, you get to keep the 20% cashback and store rewards. That actually beats purchasing Visa gift cards, since you don’t have any fees. There are a ton of stores other than Staples with plenty of opportunities as well.
I hadn’t actually planned to write a post like this, but 57 comments in the other post motivated me to do it. I’m certainly not worried about maximizing this promotion and have laid out the reasons why. With that said, it is important to weigh all outcomes and make a decision for yourself. If you are worried about Discover cracking down, use this for normal expenses or resell if you want to take advantage. There is a lot of opportunity here and several approaches to maximizing the outcome.
Please share your opinions in the comments.