Credit Card Issuers Expected to Pay $22.6 Billion in Rewards in 2016
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There have been some absolutely incredible credit card offers recently — from the 100,000 point sign-up bonus on the Chase Sapphire Reserve Card to the opportunity to earn up to 100,000 points on The Business Platinum Card from American Express OPEN. Have you ever wondered how much these offers are costing credit card companies?
According to a recent report from investment research firm Instinet, it’s not a minimal amount. In 2016, credit card issuers are set to incur a record $22.6 billion in credit card rewards expenses — more than the cost in 2010, when credit card companies incurred just $10.4 billion in expenses. Since then, this cost has risen at a compounded average of 14% per year.
|Rewards Expense||2010 Expense*||2016 Expense*||$ Increase*||Approx. % Increase**|
|American Express||$5.0 billion||$6.8 billion||$1.8 billion||36%|
|Bank of America||$0.3 billion||$2.0 billion||$1.8 billion||600%|
|Citi||$0.7 billion||$2.6 billion||$1.9 billion||271%|
|Capital One||$0.8 billion||$3.2 billion||$2.4 billion||300%|
|Discover||$0.7 billion||$1.4 billion||$0.7 billion||100%|
|JP Morgan Chase||$3.0 billion||$6.6 billion||$3.6 billion||120%|
|TOTAL||$10.4 billion||$22.6 billion||$12.2 billion||116%|
*Data compiled and/or estimated by Instinet and not independently verified by The Points Guy. **Percentage increase is based on rounded values provided and is provided for illustration purposes.
While American Express has maintained the largest expense each year from 2010-2016, its 36% increase over that period pales in comparison to the massive increases in credit card rewards paid by the other issuers. Instinet estimates that Amex customers are currently receiving around half the rewards rate that Visa and MasterCard issuers are paying “premium cardholders on competing products.” So, the analysis concludes that Amex “will find it increasingly difficult to maintain low value rewards.”
We expect AXP to face persistent upward pressure on its rewards expense, particularly in a market where heightened transparency exists around the value of rewards and consumers have no tolerance for being shortchanged.
This analysis was released a couple of weeks ago, but it’s based on historical data. So, it seems this analysis isn’t factoring in how Amex has really stepped up its game over the last few months. Depending on the cardholder’s spending style, these changes may have more than evened the score with other premium cards:
- Up to 100,000 point sign-up bonus on the Amex Business Platinum
- 1.5x Membership Rewards points for purchases over $5,000 on the Amex Business Platinum
- 50% point rebate on qualifying airfare purchases on the Amex Business Platinum, effectively giving you 2 cents per point in value toward flights
- 5x Membership Rewards points on airfare purchased directly from the airline using your The Platinum Card from American Express
The credit card issuer seeing the biggest increase in rewards expenses from 2015 to 2016 is JP Morgan Chase. Perhaps due to all of the $300 travel credits and 100,000-point bonuses on the Chase Sapphire Reserve, JP Morgan Chase’s total rewards expense is expected to soar by $1.6 billion (a 32% increase) this year.
Meanwhile, the issuer with the largest percentage increase from 2015 to 2016 is Citi. Perhaps due to a few too many cardholders getting thousands of dollars in 4th Night Free rebates on the Citi Prestige, Citi’s rewards expense is expected to double from $1.3 billion in 2015 to $2.6 billion in 2016. This might be why Citi is scaling back on so many of the benefits on the Prestige — although the 4th Night Free benefit is remaining relatively unaffected. Not wanting to fade in the credit card rewards race, Citi is back this month with 50,000 AAdvantage mile sign-up bonuses on the Citi AAdvantage Platinum Select Mastercard and the CitiBusiness AAdvantage Platinum Select Mastercard. The information for the Citi AAdvantage Platinum card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
While we generally focus on maximizing our individual credit card rewards, it’s interesting to take a step back and see just how much the credit card industry is paying for these benefits. It’s incredible that credit card rewards expenses have more than doubled in the last six years, with the total expected to hit $22.6 billion in 2016.
Hopefully American Express will continue to feel pressure from investors and other card issuers and continue to improve its offerings. And hopefully the other issuers will continue to improve as well in the continuing battle for our business.
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