The past few years have been rich indeed for consumers who relish receiving rewards for getting a new credit card. Chase and most other card issuers have attracted a swarm of new customers through extravagant signing bonuses. For example, Chase released the Chase Sapphire Reserve℠, a rewards credit card with a record-breaking sign-up bonus of 100,000 points (with Chase or the loyalty program of your choice) plus a $300 annual travel credit.
But what about American Express, whose premium card is still the plastic of choice for many business travellers and other high-income cardholders? Despite the headlines for the Chase card, and other cards like Citi Prestige® Card and Mastercard Black, Amex is holding firm, seemingly reluctant to pour too much money into bombastic, nouveau-riche sign-up bonuses or over-the-top new perks. major credit-card issuers chipping away away at the cherished audience for The Platinum Card® from American Express – frequent travelers.
Here are three reasons why Amex customers, or would-be ones, shouldn’t hold their breath for cards with lucrative sign-up bonuses from the company.
Bonuses May Not Pay Off For The Company
The company has plenty of good reasons for their conservative approach, especially at this juncture. For all the buzz and popularity of the Chase Sapphire Reserve℠, for instance, its impact has yet to hit Chase’s bottom line. The bank has already disclosed that the card reduced fourth-quarter profits in 2016 by around $300 million, and CEO Jamie Dimon has said he expects profits from the card only over time. The company hopes not only for continued loyalty to the Chase Sapphire Reserve℠ but for lucrative opportunities to sell its wealthier cardholders on other Chase products, such as auto loans and bank accounts.
Travel Hacker? Amex Doesn’t Want Your Business
That longer view assumes that enough of the people who flocked to the Chase Sapphire Reserve℠ will in fact stick with the card. And the trouble here is that the card’s stratospheric perks wound up attracting a lot of travel hackers--users who will take advantage of everything a new card has to offer and then simply cancel it when they’ve scored on the juicy bonuses.
It’s still too early to tell what percentage of the card’s user base these hackers represent, but it may be significant. These savvy opportunists may not be promising prospects for conversion to other Chase products, unless those too come with attractive (and, to Chase, costly) incentives. Travel hackers, on average, tend to skew younger, and are generally more frugal. Nor are they becoming long-term Chase credit card users that can bring in interchange revenue for the bank.
Most banks, including Chase, prevent people from continually signing up for a card, hitting a bonus, cancelling and repeating the process over and over. They do that with a rule that allows you to score the bonuses for any specific card only once every 24 months. That still allows hackers, though, to get a card, qualify for all its bonuses, cancel it, and then score those same goodies all over again a year or so after they’ve bailed.
By contrast, American Express’s policy actively repels hackers by limiting per-card bonuses to one per lifetime. It’s one of the only issuers to do this. Furthermore, travel-hacking community boards sometimes include complaints of AmEx suspending hackers’ accounts, and even revoking bonuses. The company doesn’t deny taking steps against opportunistic cardholders. In March, an AmEx executive told a conference of investors that the company “sees an “opportunity to use our analytics and technology to surgically remove gaming and reinvest in higher-quality, more loyal new customers.” A spokesman from AmEx told us the issuer seeks to “actively discourage…individuals who seek to extract maximum value from our products and benefits without sustaining a meaningful relationship with us.”
The recent changes Amex have made to The Platinum Card® from American Express only further thwart churn-and-burn cardholders. Last week, the card’s annual fee rose to $550, up from $450, making it one of the most expensive cards on the market. Unlike some of the credit cards popular in the hacker community, the fee is assessed immediately and not waived during the first year-- a huge disincentive to hackers.
At the same time, a $100 increase in the annual fee is unlikely to prompt cancellations from the card’s core audience – high-net-worth spenders and business travelers who are comfortable with, and loyal to, the platinum product.
AmEx Has Little Else But Cards To Sell You
A look at AmEx’s revenue drivers provides further clues as to why they’re especially resistant to hackers. Unlike many of the other banks, their primary line of business is credit cards, and they have fewer other profitable products they can pitch to their customers than do banks, for example.
It’s as yet unclear whether Amex’s strategy of emphasizing loyalty over market share will in fact be the best one in the long run. Regardless of which corporate strategy prevails, the true winners here may be consumers, as the war for prestige-card holders continues with many enticing spoils available to customers who play their cards right.