Card ri­vals of­fer high-end re­wards, but there’s a catch

Northwest Arkansas Democrat-Gazette - - MARKETS - KEN SWEET

NEW YORK — Shop­pers with means who want a lot of high-end re­wards on their credit cards have plenty of op­tions — at least right now.

Since JPMor­gan Chase launched the $ 450- a- year Chase Sap­phire Re­serve Card a year ago, join­ing the mar­ket cre­ated by the Amer­i­can Ex­press Plat­inum Card, com­pa­nies like U.S. Bank and UBS have jumped in with sim­i­lar cards. Citi’s Pres­tige card, which gives the unique ben­e­fit of a fourth night free at ho­tels, al­ready ex­isted.

The in­creased com­pe­ti­tion could help cus­tomers. Banks some­times waive an­nual fees or of­fer ad­di­tional points for cer­tain types of spend­ing in or­der to drive busi­ness. And an­a­lysts say the com­pa­nies’ de­sire to keep their cards dis­tinc­tive may mean they of­fer more ben­e­fits. But whether enough peo­ple want to hold th­ese cards may de­ter­mine how sus­tain­able the pro­fu­sion is.

Chase’s Sap­phire Re­serve Card was in­tro­duced last Au­gust with a 100,000-point sign-up bonus, worth $1,500 us­ing Chase’s re­wards pro­gram, a $300 an­nual travel credit, and no for­eign trans­ac­tion fees, among other perks. Even with the huge fee, cus­tomers ate it up. De­mand was so high that Chase tem­po­rar­ily ran out of the metal al­loy used to make it.

Banks had pre­vi­ously thought that the mar­ket for lux­ury credit cards, while lu­cra­tive, would be small — roughly the top 10 per­cent of U.S. house­holds, and mainly older cus­tomers. And the num­ber of peo­ple who would carry more than one would be even smaller.

But the de­mo­graph­ics have changed. Younger con­sumers have been keen on the new gen­er­a­tion of lux­ury cards — per­haps be­cause, as an­a­lysts posit, they are will­ing to pay the large an­nual fee for ac­cess to ex­pe­ri­ences and travel that they prize more highly.

Some cus­tomers who now have both an AmEx Plat­inum and Chase Sap­phire Re­serve are pay­ing a com­bined $1,000 a year in fees for them. The ar­gu­ment among the pas­sion­ate is that each pro­vides dif­fer­ent ben­e­fits. AmEx’s air­port lounge ac­cess is broader, while Chase of­fers more lib­eral ways of ac­cu­mu­lat­ing points.

“We carry them both be­cause each card of­fers us dif­fer­ent ben­e­fits, which we have taken full ad­van­tage of,” said Court­ney Val­divia, 31, who with her hus­band has both cards.

The card is­suers are hop­ing enough peo­ple feel the same way. The early adopters of the Chase Sap­phire Re­serve card will be de­cid­ing soon whether to re­new and once again pay the $450 an­nual fee. While the card gets strong re­views from users, it’s not clear whether that will be enough to as­suage the sticker shock of the an­nual fee, an­a­lysts say.

And with more op­tions, they also may want to give one of the newer cards a try for dif­fer­ent ben­e­fits. AmEx has tried to gear its Plat­inum Card to­ward a younger au­di­ence, re­cently rolling out a $200 a year credit on ride­hail­ing app Uber.

“Ev­ery­one is chas­ing the same pool of peo­ple,” said Brian Riley, a di­rec­tor at bank con­sult­ing firm Mer­ca­tor Ad­vi­sory, who has worked in the credit card in­dus­try for more than 25 years.

The gen­er­ous ben­e­fits may also end up pres­sur­ing the com­pa­nies pur­su­ing those cus­tomers.

In­dus­try an­a­lysts said they did not be­lieve Chase’s 100,000-point Sap­phire pro­mo­tion was sus­tain­able, and the com­pany did cut its signup bonus to 50,000 points roughly six months af­ter the launch. Chase has said it was never meant to be per­ma­nent.

Run­ning a lux­ury credit card pro­gram is ex­pen­sive. In or­der to pay for the points pro­grams and sign- up bonuses, banks need cus­tomers to charge sub­stan­tial sums to their cards in a year, of­ten tens of thou­sands of dol­lars a year.

But if the com­pe­ti­tion gets too fierce, or makes the cards too ex­pen­sive to run, banks could cut back on things like lounge ac­cess, or points re­demp­tion, as they have in the past. And fewer ben­e­fits may start a spi­ral of even fewer cus­tomers to keep the cards afloat.

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