We’ve seen plenty of glitz and glamour from credit card rewards in the last few years: massive sign-up bonuses worth thousands of dollars, access to a growing list of exclusive airport lounges around the world, and even “Hamilton” tickets. But are we nearing the end of this golden era?
Signs of cooling rewards offerings have started popping up: Discover recently eliminated a handful of card benefits, including extended product warranty, purchase protection and auto rental coverage. One of the biggest sign-up bonuses ever, offered by Chase Sapphire Reserve, was slashed in half in early 2017.
Still, credit card experts say that although some of the details of the sign-up bonuses and ancillary benefits may change in the future, people's favorite rewards — the cash back and points that cardholders tend to value highly — aren’t going anywhere. In fact, they might become more valuable because they’ll be more personal.
Card issuers rely on rewards heavily to entice new customers. In fact, in some cases they might even be willing to lose money with generous reward offers just to increase their customer base.
Here’s what you need to know about the future of credit card rewards:
All credit card benefits aren’t valued equally
“People just don’t care about certain rewards,” says Mike Berinato, vice president of research and consulting for Market Strategies International, a financial services research and consulting company. Berinato dubs the addition of less-valued benefits, including access to events and concierge support, as “feature creep” — he says there are so many hidden benefits that people often aren’t even aware of them and therefore don’t value or use them. Indeed, that’s why Discover said it dropped some of its card benefits.
Market Strategies recently published a report showing that 80% of card users are “unclear” about the benefits on their primary credit card. “You don’t need 14 benefits; you need the right two or three,” Berinato adds.
Expect rewards to get much more personal
To provide more value to cardholders, card issuers will tailor rewards more specifically to customer preferences, including the stores they shop at or even items they buy, says Tom Dailey, a card payments consultant.
“The payments industry on the whole is getting much more personalized, and technology is enabling that,” he says. “You want to be able to deliver offers that are highly targeted to that individual’s purchase behaviors.”
Given card issuers’ ability to track people’s spending, along with the rapid advancement of technology in the field, Dailey says he could envision cards soon notifying a customer about a cash-back deal on jeans at the exact moment she is approaching her favorite store’s jeans display, for example.
Berinato notes that certain cards already appeal to certain demographics, and card issuers try to gain traction among specific types of consumers. For example, premium travel rewards tend to appeal to relatively affluent adventure-seekers who are always on the go. Berinato, a dad to three young kids, notes he is drawn to a Costco-branded credit card because he spends so much on household items, and those rewards add up.
Or consider the recent addition of 5% cash back rewards at Whole Foods from the Amazon Prime Rewards Visa Signature, an example of a targeted offer that appeals to Amazon customers who also enjoy organic food.
“I would expect to see more of that,” says John Grund, a managing director in the payments practice at Accenture, a professional services and consulting company. He notes that some co-branded deals are driven by corporate mergers and acquisitions, as in the case of Whole Foods and Amazon. “The competition for cardholders will probably never abate. It’s a real arm’s race,” he adds.
Consumers value cash back and points a lot
The Market Strategies report found that cash back is one of the credit card features consumers are most interested in. In addition, according to a recent survey of credit card users by Aite Group, a financial services industry research company, only 4% of respondents don’t redeem their rewards. The vast majority — 82% — redeem their points at least once a year.
“The appetite from consumers is insatiable. No one turns down a good deal,” Grund says. “Some products might prove untenable for banks and you see that dialed back, but we don’t see a widespread rationing of rewards across the industry, because it’s a basis for competition, especially for affluent customer segments,” he adds. “Rewards are here to stay.”
Issuers may be willing to lose money on rewards to acquire new customers
A new cardholder may join a financial institution for the credit card sign-up bonus, but then move on to other profitable products within the institution, such as a mortgage or car loan.
“While the credit card department may break even or even lose dollars on incentives they offer, they are going to regain that in a different department, like mortgage or banking,” says Kevin Morrison, senior analyst on the retail banking and payments team at Aite Group.
That’s one reason he doesn’t expect credit card rewards to disappear — they are a valuable customer acquisition tool. “[Offering competitive rewards] will drive higher revenue for the bank overall,” Morrison adds.
The bottom line? The rewards party isn’t ending anytime soon; it’s just that some specifics may change. For now, get to know your credit card and the benefits it already offers. You’ll avoid missing out on potentially valuable perks, and you’ll also be able to gauge whether new offers are better fits for you.
