A month ago, Bilt’s Richard Kerr laid out the economics of their point redemptions. It’s basically for some, revelatory for others. They care about the blended average cost of redeeming a point. So they need some members redeeming at low value for Amazon, rent and statement credits in order to provide points transfers to expensive programs like Hyatt.

He’s back explaining why some points transfers fail, or take longer than expected and I think he does a nice job laying out some of the issues that members might not consider.

There’s a lot more that goes into points transfers than just entering your name and account number and hitting submit. You were expecting an instant transfer from your transferable points program, why did the points not show up right away?

How Points Transfers Work Behind The Scenes

Bilt works with Points.com on transfers, which is one of the major companies that is set up with the ‘piping’ to move points easily between programs. A major competitor is Ascenda.

Each program agrees to their own commercial terms, then gets set up to make transfers. Here’s how Richard explains Points’ value add. Using points, the process to onboard a new points transfer partner takes them about 8 weeks.

If we are entertaining the possibility of new partners and they are not currently integrated at all with Points.com we could potentially skip Points.com and do a direct integration with the program (we currently have one partner we do this with).

Lot of downsides to direct integrations – custom tech stack we have to integrate with for every partner, no fraud tools Points.com deploys to stop currency fraud (a potentially massive problem) and longer lead times to stand up the transfer capability. We would also have to do all tech debt and maintenance on that integration, something Points.com handles for us.

Linking Your Accounts To Improve The Odds Transfers Succeed

The first step in doing points transfers is “account linking” or making sure that the two accounts match.

• Each program has their own matching conventions. Some programs require a check of first and last name, some only last name. Other programs require greater matching than that.
• One way to link accounts is to have a member sign into their account with the loyalty program they want to transfer to. That’s the most foolproof. For programs that don’t invest in this, or aren’t comfortable offering it, that means manually entering account numbers and names. Richard doesn’t mention this explicitly, but these details don’t actually get checked and validated with all programs. So ‘linking’ doesn’t mean your transfers will necessarily work in all cases.
• And members make non-obvious mistakes entering their information all the time:
  

  Millions of Bilt members not mistyping their name or number (you do all the time but swear you don’t). Hyatt’s last digit of their member number is a letter, but they still use I and O. Hundreds of members type a 1 or a 0 and spend days going back and forth with us on saying they typed the member number correctly when they didn’t. I have pleaded Hyatt stop using an O and I on the end of their numbers.

  The name on the loyalty program matching your name on the Bilt account (maiden names, hyphenated names, alias, an apostrophe in the name). There are so many reasons this linking will fail and we can’t do much except ask you to check your name on the loyalty program account that we have no visibility into. Many members will tell us they checked and checked, linking will still fail, we’ll ask for a screenshot of the name on the loyalty program and sure enough it’s a different name.

Why Points Transfers Sometimes Take Time – Or Fail

Once your account is linked, and you go to make a transfer, usually everything happens smoothly. And things happen much more quickly than they used to. When I first started collecting transferable points, one program might send a data tape to the other. In the mail. And they wouldn’t do this every day! It might be once a week.

Transfers from Starwood to some programs in Asia might be done once every two weeks, or even just once per month. If you missed the cutoff for that month, you’d wait for the next month’s batch. Sometimes you’d hit a transfer right before cutoff, and it would show up in a few days. Sometimes you’d hit a transfer right after and it would take more than 30 days to a program like Cathay Pacific or China Eastern.

Over the last decade there’s been a move for programs to be ‘live’ with each other. When Air France KLM was onboarded as a Chase transfer partner it took nearly a year, because of Chase’s insistence that transfers were live. American Express has moved to a lot more live transfers over the past few years (even Singapore went live there).

Richard explains why transfers sometimes fail, even between linked accounts. On average, he says, Bilt points transfers take six minutes when you factor times when they’re delayed.

• API calls and fraud checks aren’t literally instant
• High transfer volume can slow things down, such as Bilt Rent day bonuses where they get slammed (think their offers of up to 150% bonuses on transfers to Air France KLM, Virgin, etc.).
• “Some airline and hotel credit APIs don’t run in the middle of the night, they may be on pause for maintenance”

Volume is a major issue, as well as short-term API failures on a program’s end. Points.com is really robust, as well, but when Air Canada first launched points sales through them in the depths of the pandemic something amazing happened. It was May 2020, and people were staying home, but when Aeroplan offered miles from as low as 1 cent per point the demand was so astronomical that they crashed the points.com servers. I don’t think that had ever happened before – and it was inspiring for a lot of the loyalty industry to see how much members believed in the future of travel.

Transfers Are Much Faster Than They Used To Be, But Not All Are Instant!

Most transfers from most programs are supposed to be instant these days. Amex has even reduced the transfer time to ANA from 48-72 hours down to often a day, but that’s still not instant.

I believe that Bilt is ‘live’ with Cathay Pacific Asia Miles, a program that’s especially useful for redeeming award travel on British Airways with lower surcharges. However, transfers to Cathay aren’t instant (taking a day or two) with some other programs.

What amazes me is that Chase isn’t instant with co-brand credit card partners Marriott and IHG. Transfers from Capital One and Citi to EVA Air (useful for pretty good business class award availability) can take a couple of days. Transfers from Marriott to most of their airline partners continues to take several days.

But the real contribution here is the reminder of how much goes on behind the scenes to make these transfers work, to understand on the rare occasion that they fail what might be going on.

That Pesky Excise Tax

Since someone asked Richard in the comments about American Express charging a fee to transfer points to domestic airlines (while Bilt and other programs generally do not), “Just curious if it’s Amex just trying to recoup costs for transactions fees charged by points/plusgrade” and Richard offered his answer I figured I’d share on the expansion I offered there as well.

Richard offers,

There is a 7% excise tax on all transfers to domestic airline partners. It doesn’t make much sense to me but it is law. Bilt covers that tax on your behalf from our own pocket, Amex charges it to you (capped at $99).

Here’s a more detailed answer. There is a 7% excise tax on domestic airfare. It’s ‘assumed’ that transfers to U.S. airlines are redeemed for domestic travel, while transfers to non-U.S. airlines are redeemed for international travel. As a result, the 7% excise tax is applied to U.S. airline points transfers.

When you transfer to non-U.S. airlines or to hotels there’s no excise tax, and Amex doesn’t charge this fee meant to recoup some of their tax expense. Chase (United, Southwest) and Bilt (United, Alaska) absorb the tax expense. So does Citi (JetBlue). Capital One doesn’t have a U.S. airline transfer partner.

In 2015 the IRS considered reducing the tax levied on mileage sales taking into account the percentage of awards claimed for domestic travel versus other things (e.g. “redemptions for international air transportation, restaurant gift cards, magazine and newspaper subscriptions, free hotel nights, and items from the airline’s shopping catalog.”). Unfortunately that change never happened.

The IRS actually says that if you use purchased (or transferred) miles for international travel (or hotels, gift cards, or anything other than domestic air travel) you can claim a refund of that 7.5% tax.

[T]axpayers currently must pay tax on all frequent flyer miles purchased from an airline mileage awards program and then file a claim for credit or refund for tax paid on those frequent flyer miles that were ultimately redeemed other than for taxable air transportation.

Only problem is I have never figured out how to do this successfully. Last time I looked at this it seemed you would use IRS form 8849, attaching Schedule 6 (for ‘other claims’) to request a refund of excise taxes. You’d need to attach additional pages explaining the claim and how it was calculated.

However I never found the CRN (credit reference number, which is required to use schedule 6) to use for air transportation excise tax. I put this away some time ago and never went back. Maybe some of y’all even more neurodivergent than I am want to go down this rabbit hole and can return with the answer!

Now, in the case of points transfers from Bilt where Bilt is paying the tax, I don’t think you as the member can claim a refund of Bilt’s payment. And Bilt isn’t set up to claim it either, without being able to prove how the points were used.

And when you’re redeeming points other than fresh out of a zero balance account that you transfer into and instantly redeem from, do you even know which points were redeemed? I also doubt you could claim a refund on the fee Amex charges you, which isn’t actually charging you a pass-through of the tax!

But you could certainly try when it comes to purchase of points from a US airline.