The Critical Points: No, The End Isn’t Near for Credit Card Rewards
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Each week in his column “The Critical Points,” TPG Senior Points and Miles Contributor Richard Kerr presents his opinion on a loyalty program, card product or recent news that he believes is overlooked, unsung or the result of groupthink taking mass opinion in a direction with which he doesn’t agree. His goal is not necessarily to convince you to agree with his position but rather to induce critical thought for each of the topics and positions he covers.
A series of articles have recently been making the rounds decrying the imminent pull back of credit card rewards and the end of lucrative benefits and sign up bonuses. The Wall Street Journal article (sorry, pay wall) from January 1 is the most notable example and has been shared across social media — I know an article has become mainstream when my parents text it to me and ask for commentary.
While the landscape of rewards is changing, there is no reason to believe that 2019 will be the end of credit card rewards and perks as we know it. On the contrary, my recent discussions with bank executives and the movement we’ve seen in the card market in just the last quarter of 2018 prove that you have little to worry about. Let’s look at a few excerpts from the Wall Street Journal article and disprove the angst it has been inducing.
Argument: Banks are lowering welcome bonuses.
Response: That’s news to me.
Just because the Chase Sapphire Reserve dropped its (admittedly unsustainable) 100,000-point bonus in January 2017 (two years ago at this point), that doesn’t mean other cards have followed. The article states the average sign-up bonus has dropped from 66,000 points in 2016 to 44,000 points in 2018. I’d really like to see that study and analyze what cards and bonuses were included. Did it include limited-time offers? Targeted offers? How did it account for cash-back? What currencies did it compare — was it all at a 1:1 basis? Merrill Lynch offered a 50,000-point bonus that was worth up to $1,000. How were situations like that accounted for?
There are many data points that disprove this assertion:
- Offers through the CardMatch Tool and targeted mailers on The Platinum Card® from American Express and The Business Platinum Card® from American Express continue to offer enhanced welcome bonuses, just as they have for years.
- You can earn 50,000 – 65,000 American miles after a single purchase with the Barclays Aviator products.
- The United Explorer Card is offering a sign-up bonus of 60,000 bonus miles after you spend $3,000 on purchases in the first three months from account opening.
- Capital One Spark Miles for Business card is offering up to 200,000 bonus miles; 50,000 bonus miles when you spend $5,000 in the first 3 months and earn 150,000 bonus miles when you spend $50,000 in the first 6 months of your account opening.
Countless other cards are still offering $500+ worth of rewards as a welcome offer for new cardholders. If you want big points and miles from sign up bonuses in 2019, they are still abundant.
Argument: Banks are facing rewards enthusiasts who take pride in wringing the most out of each card.
Response: This has created better, more rewarding card products in 2018.
If a bank is surprised that consumers use multiple tools to maximize their return on monthly spend, they need to hire new executives. I’d argue this exact sentiment is currently driving competition between banks and making better card products that are going to stay “top of the wallet” (as some bank execs like to say). In 2018, we saw the introduction of the enhanced Capital One® Savor® Cash Rewards Credit Card, offering 4% cash back on dining and entertainment, 2% cash back at grocery stores and a $300 cash bonus once you spend $3,000 on purchases within three months from account opening. The information for the Capital One Savor Cash Rewards Credit 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.
The American Express® Gold Card comes with a host of credits, benefits, improved earning rates on dining and US supermarkets and an enhanced welcome bonus via referrals. That’s a competitive value proposition, and the card is already at the top of many new cardholders’ wallets.
I believe customers’ desires to get the most out each card has in fact created better card products with higher rewards, the exact opposite of the article’s argument.
Argument: Cards are dropping earnings and perks.
Response: This is both a reinstatement and loss of common sense, depending on which bank we’re talking about.
The article brings up a couple of examples where perks or earning rates have been cut. One is the new cap on the Citi Prestige’ 4th night free benefit, one that is undoubtedly costing the bank plenty of money. When I first saw that perk announced, it went straight into the category of ‘too good to last’ as you could easily cost Citi over $10,000 a year by yourself. Next is the price protection drop by the Sapphire Reserve, a necessity given the technology that can easily scroll thousands of websites a day for cheaper prices. Having that uncapped without restriction was simply no longer sustainable. It’s easy to argue that neither of these perks should’ve been a part of these cards when they launched, and the changes simply represent a reinstitution of common sense by bank execs.
The other example is the earning rate cut of the Starwood Preferred Guest® Credit Card from American Express and Starwood Preferred Guest® Business Credit Card from American Express; non-bonus-category spending on these two cards now earns 2 Marriott points instead of the 3 points (1 Starpoint) it did before Aug. 1, 2018. Counterintuitive to its argument, the article shows how this type of adjustment is bad for a bank’s business. Since the change, many card members have put the SPG cards at the bottom of their wallets (if not in the sock drawer). A 33% cut in rewards earning power means that card portfolio is likely suffering at this point, and I expect to see a revamp sometime in 2019 or 2020 if Amex wants it to stay relevant. Banks that cut earning power today risk losing customers tomorrow.
Argument: Banks can’t wean customers off easy perks.
Response: This is why credit card rewards in their current form are not going anywhere.
The article does conclude by introducing last year’s Barclays Arrival Premier experiment; in my opinion, this card represented the first legitimate effort to get people to sign up for and utilize a credit card that only rewards customers for sustained spending. The article notes TPG gave it a lukewarm review (which I wrote) mainly because the card offered no sign-up bonus and provided complicated and less-than-lucrative transfer partners & ratios. Barclays even tried waiving the annual fee on the card before it stopped taking applications in October, because it never gather momentum and the following needed to be successful. Failing in such an overwhelming manner definitively proved (for now, at least) that a card without a bonus and with limited perks is not going to garner much business for a bank.
There’s a larger notion at play here which continues to irk me. The mainstream media has picked up on the term ‘gaming’ as of a couple years ago, and it continues to trot it out in articles such as this Wall Street Journal piece. As a senior Barclays executive told me in December:
“It isn’t gaming the system if you play by the rules I set. Just because you’re smart doesn’t mean you’re doing anything wrong.”
It seems rather hypocritical for banks to be upset with customers who follow the rules they themselves set up just because it doesn’t play to the bank’s advantage. If banks are consistently looking out for their own best interest, why shouldn’t customers do the same? I am not gaming any system — this implies the intentional manipulation of rules to the detriment of others or an organization. I am being strategic about how I follow a published set of rules while never violating them. Isn’t this the same way banks follow tax guidelines, SEC regulations, and state & federal laws? Let’s drop the term gaming and call us what we are: smart, informed consumers (well, at least most of the time).
Are credit card rewards evolving? Yes, just as they have since their inception. A few banks are correcting overzealous, nonsensical benefits, and others are making failed experiments. Does this signal credit card rewards are on the downslope? No.
In 2018, I sat down with issuers at conferences and in their respective headquarters and discussed rewards from both micro and macro perspectives. I can tell you the sentiment is anything but “we need to make cuts” among these individuals. Instead, the overwhelming majority are asking themselves this question: “What can we improve to stay competitive and gain an edge?” I already know we are going to see the evolution of a few products for the better in 2019, but welcome bonuses are going to continue to be a part of US credit cards.
Make no mistake: these banks are making money on credit card annual fees, interest charges and interchange fees, and they don’t want to turn off that source of revenue. Talks about legislation limiting interchange fees continue to come and go, but there are no serious legislative efforts on the table. If there were, a mighty lobbying power funded by banks would be there to stop it. If you’re a smart consumer (no, not a gamer), then rest easy and worry little. Your next several award trips are still attainable and waiting for you.
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