Do you think that rewards credit cards are sustainable, or are they eventually going to be less generous? - Industry Roundup #10
This week, for Issue #10 of the Credit Card Reviews Industry Roundup, the focus is on the future of rewards cards. The experts offer their predictions on the ever changing rewards credit card landscape and what they think is in store for us going forward. Jason Steele asks them:
Do you think that rewards credit cards are sustainable, or are they eventually going to be less generous?
This week's contributors are Dia Adams, Beverly Harzog, Emily Guy Birken, Greg Johnson, Ari Charlestein, and Debra Schroeder:
Dia Adams - Owner of The Deal Mommy, a site dedicated to helping families travel for less.
Yes, and yes. I’ve seen a lot of angst in the points and miles blogosphere lately. With few exceptions most “State of the Union” posts I’ve seen carry a tinge of Chicken Little. You won’t see me joining in the doom and gloom. The skill most needed to sustain credit cards rewards is adaptation. When one program flames out, another will rise from the ashes.
The cards I use daily- currently Chase Sapphire Reserve and Barclay Arrival+ - are different than those I utilized six months ago. Currently I’m stockpiling flexible currencies as I don’t have a specific use in mind. In six months I’m sure two different cards will take center stage. As both the programs and my needs evolve, so will my rewards credit card strategy.
My rewards hero is MacGyver, the TV icon who maximized the tools available to him in any situation- even if those tools were limited to duct tape and baking soda. The world will always move forward. But that dash of salt, paper clip and wad of old chewing gum will always be there. It’s up to you to make the magic.
Beverly Harzog - Credit Card Expert, Bestselling Author, and Consumer Advocate
The economy is improving and consumer confidence is on the rise. People feel optimistic about their finances and so they are comfortable spending money. And as spending increases, there will be fierce competition among issuers to get the cardholders that I call “power users.” These are the folks who maximize their rewards and rarely, if ever, carry a balance.
The card issuers love power users and they will continue to create tantalizing offers, including very good sign-up bonuses and out-of-the-box rewards, such as credits for Spotify and Uber. The rewards programs are unlikely to shrink this year, but keep a sober eye on the horizon. More rate increases are expected, so read emails and open any mail you receive from your credit card company. Enjoy the good times now, but be alert to gradual changes.
The biggest issue about consumer spending is that credit card debt has increased. The Fed just raised the federal funds rate and this can mean higher interest rates on credit cards. Now, rewards credit cards already tend to have higher APRs. So it’s never been more important to pay your bill in full every month. Choose the credit card with the rewards that match your lifestyle. Factor in the annual fee, if there is one, to make sure the card is a big win for you. Then be strategic with your rewards credit cards and you can maximize your payoff.
Emily Guy Birken - Milwaukee-based former educator and freelance writer specializing in personal finance.
Credit card companies will always do what is best for their own profits, which means that rewards cards may not always be so generous. Rewards cards are as generous as they are right now because the number of credit card users who are actually able to reap the rewards without carrying a balance is pretty low. Credit cards recognize that they might lose money offering rewards to such cardholders, but there are more than enough revolving balance cardholders who pay monthly interest to offset the cost of the rewards. Credit card companies simply wouldn't offer rewards if they were losing money on the deal, which is what would happen if every cardholder paid his or her bill in full every month.
There will always be consumers who maintain a revolving balance on their credit cards and who are tempted to spend more than they can afford because of rewards offers. However, with the explosive increase in fintech, which can help less savvy budgeters learn how to keep better track of their finances, I think it's only a matter of time before enough cardholders use rewards cards to their advantage to change the landscape of rewards credit cards. When that happens, credit card reward strategies will become less generous to maintain profits.
Greg Johnson - Co-Owner of Club Thrifty
With Americans making trillions of dollars in purchases on credit cards each year, the lifetime value of a credit card customer is extremely high. The card issuers understand this, and I expect they will continue offering lucrative rewards to compete for each customer’s business.
To me, rewards cards are a bit like checking accounts. Why would anybody choose a checking account with fees when they can bank across the street for free? It’s the same thing with credit card rewards. It doesn’t make sense to sign up for a card that offers zero rewards when you can easily find one that provides a ton of value.
Now, that doesn’t mean the rewards won’t change. There is a constant ebb and flow to credit card rewards. Over the past several years, we’ve seen some programs loosen their restrictions while others have tightened up on approvals (i.e.: The Chase 5/24 rule). Issuers will always perform a balancing act of offering just enough rewards to entice the most customers at the lowest cost to them.
On the other hand, I don’t see many of the premium rewards cards making too many changes. In fact, I’d like to hope any changes will benefit the consumer. Since they already charge annual fees, I expect issuers to continue adding even more value to these cards so that they can stay ahead of their competition and attract more card members.
Ari Charlestein - Founder of First Class and Beyond
There’s no doubt we’ve seen a scale-back in the “game-ability” of points-earning credit cards. Back in the day, even as late as 2011 or 2012, cards were regularly offering huge sign up bonuses - some offering as many as 100k points. The best part though, was the ability to churn the cards, over and over and over again. As we’ve now seen, with Chase’s 5/24 language and AMEX’s one-per-lifetime language, is that banks are getting smarter and no longer want to be in the business of helping guys like me stockpile huge number of points.
Rather, they are now trying to exclusively use these sign-up bonuses, together with other nice card-holder perks, to get legitimate new users. For the most part, it’s working, and it’s nice to see so many cards offering so many great non-points benefits; things like Hilton Diamond status with their AMEX Aspire card, or 3x on travel spend with the Chase Sapphire reserve; not to mention lounge access, travel credits, free Global Entry and so much more. Sure, it’s harder than ever to earn huge numbers of points, and yes, airlines are making it harder (and more expensive) to redeem for those aspirational trips, but having great perks and transferable points definitely eases the sting.
Debra Schroeder - Freelance writer and Founder of Traveling Well for Less
Rewards credit cards will continue to be sustainable and offer generous benefits. When banks first introduced rewards cards, the offers weren't that favorable, if you were lucky you could get a free flight. Over time, the signup bonuses and perks have increased and will continue to get better. We're seeing signup bonuses of 100,000 points/miles on some rewards credit cards, something that was unheard of almost 24 years ago! Mattress running for elite status has become a thing of the past because you can get elite status by having a hotel co-branded reward credit card.
With so much competition between rewards cards and people no longer keeping their cards forever, the banks are pulling out all the stops to entice people to apply for their card. But the banks have also imposed restrictions to prevent gaming of the system. These limitations have a slight impact on those of us who have been using rewards credit cards for a long time. Despite these obstacles, there will always be a new card with enticing benefits. You have to be strategic and have a plan vs applying for any card. Think of the rewards credit card game as a relationship: what is your end goal? Are you in it for quickie? Or are you looking for a long term commitment?