Industry News

How the recent spate of luxury credit cards might ruin your summer travel plans; This year was a credit card ‘arms race’ for points


Maria LaMagna | Wednesday, April 19, 2017

Market Watch

This year was a credit card ‘arms race’ for points

Summer travel may be crazier than usual this year, and credit card “gamers” are to blame.

The past 12 months have been an “arms race” between issuers offering flashy travel credit cards, according to Gerard du Toit, a Boston-based partner at the consulting firm Bain & Company, who is the head of the firm’s banking practice in the Americas. The industry is experiencing, he said, “very, very aggressive offers.” A spate of recent luxury credit cards come with generous rewards and expensive annual fees, so customers are more likely to make sure they get their money’s worth.

Chase’s Sapphire Reserve card (JPM, US) made headlines this year when more than 900,000 people signed up for it between September 2016 and November 2016. (Chase declined to confirm that number.) American Express (AXP, US) also followed Chase’s lead by offering a new version of its Platinum card, which recently boosted its sign-up bonus from 40,000 points to 60,000 points. Both cards are made from metal. So many people applied for it that the company reportedly temporarily ran out of embedded metals.

If every customer met the minimum spend to unlock just the Sapphire Reserve card’s 100,000 point sign-up bonus — later reduced to 50,000 points — they would have roughly 91 billion points to spend, an equivalent of more than $1 billion, the personal finance website NerdWallet calculated this week. (Chase declined to confirm that number, but said in its 2017 Investor Day presentation that more than 10.4 million people opened new Chase credit-card accounts in 2016.)

American Express declined to say how many people have signed up for the Platinum card. The company previously told The Wall Street Journal it experienced “a small increase” in the number of consumers who closed their

Platinum cards during the two-week period when Chase launched the Sapphire Reserve. But after that initial drop-off the card recovered and there are more Platinum card members than any time in the card’s history. “We’ve been pleased with the continued growth of our Platinum Card member base,” a company spokeswoman told MarketWatch.

There will likely be fewer ‘rewards seats’ this summer

The likely result? A whole lot of travelers trying to use their points before year-end, du Toit said. In fact, about half of people who sign up for credit cards with sign-up bonuses — which also come with hefty annual fees — ditch the card after the first year, Bain found.

Summer travel will likely see an unprecedented surge, which may create never-before-seen competition for airline seats this year, said George Hobica, the president of the travel site Airfarewatchdog. “Airlines don’t increase award seats merely because more people have more miles,” he said in an email. “It will be even harder to find award seats.”

Booking travel as far in advance as possible is one way to solve that problem, Hobica said. But if it’s already too late, calling airlines rather than attempting to book online could help as not all offers are posted online and, if nothing is available, consumers may be able to book last minute, since that’s when airlines often release their last few award seats. Another tip: Many airlines hold back cheaper flights from their flights-only online booking to pair with vacation packages, Hobica said.

See also:These are the times you shouldn’t book a flight with points

The industry may compensate for the surge in credit-card points if there are more blockbuster credit-card offers next year. Because credit-card issuers have realized many consumers only want to “game” them by using the card’s sign-up bonus and then canceling it, credit-card companies will continue to experiment to see what perks and types of rewards actually keep customers loyal, du Toit said.

One way they could do that: Making points easier to redeem, not only for travel, but at check-out for retailers, said Michael Landau, the payments lead for the financial technology practice at professional services firm

PricewaterhouseCoopers. On Amazon (AMZN, US), for example, it’s possible to check out with credit card points.

In Chase’s case, the company has focused on offering rewards beyond the sign-up bonus, including an annual travel credit for the Sapphire Reserve card, said Pam Codispoti, the president of Chase Branded Cards. The company also guards against credit-card “gamers” by declining applicants who have applied for multiple bank cards in a short period of time. “We’re in it for a long-term, committed relationship,” she said. “We’re going for the marriage and not the love ’em and leave ’em customers.”

The industry faces a new dilemma with an increasing number of luxury credit cards hitting the market, including Citi’s Prestige card, often considered a competitor of the Sapphire Reserve and American Express Platinum. Card issuers and banks must be able to keep the cost of their loyalty programs low enough to be sustainable, Landau said, and if they lose customers shortly after gaining them, that won’t be possible. As a result, the generous offers may start to dwindle. “This might be looked upon later as a golden age of points,” he said.

See alsoHere’s proof that disputing your credit-card bill could be worth it

The big mistake one-third of credit card holders are making

More evidence Americans are becoming obsessed with putting everything on credit

This article was licensed through Dow Jones Direct.

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