Loyal3 will be completely stopping the use of credit cards by the middle of December. Ultimately, I knew it was only a matter of time. Too many people were arbitraging the system and making too much in rewards for it not to happen. Is this where we ask something like, why cant we just have nice things? No, absolutely not the case. While many of those in the dividend growth investing world have not abused the practice, there are those who have utilized credit cards to purchase tens of thousands of dollars of stock or more, than sell it a few weeks later, simply leveraging the strong market into generating thousands of dollars in rewards points.

Why does that matter for a company like Loyal3. Its fairly simple, transaction costs. When accepting credit cards, companies pay between 2-3% of the transactional value in fees. Needless to say, this can get expensive really quickly. If you have 2,000 people flushing $10,000 over the course of six months, as a company youre absorbing $400-600,000 in credit card fees. Heck of a lot of operational cost, and that doesnt even include the regular folks who just like investing with no-fees and utilize cash. Since Loyal3 does not make money off the retail investor, this customer cost, in addition to what they are spending to acquire the customer, is just not worth it. As a start-up trying to build a viable business, this seems like a no-brainer and why I didnt think the party would last forever.

Does this change the Loyal3 offerings from a value proposition? Yes and no. For investors who solely were concerned about arbitrating the situation, this is a crushing blow. For the rest of us, likely we should continue to use Loyal3 in the manner it has been provided. A simple, no-cost means of dollar cost averaging into some very wide-moat and viable dividend growth offerings.

The important parts of the notification email received from Loyal3:

Weve had an amazing 2014, introducing more IPOs to the general public than ever before with brands such as Santander Consumer USA, GoPro and Dave & Busters. And weve added many new stocks, including most recently, Kraft Foods.

Through the success, weve also learned a lot about how people use LOYAL3. Credit cards have become a common method for people gaming LOYAL3 to gain credit card points and not for the purpose of investing. This increases our costs and subtracts from our mission of making it easy, affordable and fee-free for people to invest in the brands they love.

In order to put an end to the gaming of LOYAL3, and to maintain fee-free investing, on Tuesday, 11/18/2014, we will be removing credit and debit cards from the LOYAL3 platform. Automatic Monthly Plans (monthly recurring investments) using credit and debit cards will continue to be active until Thursday, 12/11/2014, to allow time to switch over to ACH (checking account transfers)

So, while Im sad to to see it go, again, this doesnt change my ultimate goal in building a no-cost portfolio. While I will likely wont have as much incentive to put as many dollars to work going forward, I will not stop investing. My snowball  at Loyal3 is growing, and I have no intention of letting it slow down or stop now!

For those who have invested in Loyal3. what are your thoughts? For those who havent invested with Loyal3, would you still be interested in investing, even without the rewards angle?