Could Banks do the Unthinkable? - Running with Miles
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Could Banks do the Unthinkable?

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Written by Dustin

The Barclay Arrival Premier could have set off an idea that could really change the game. Could it actually happen though?

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About a year ago, I had a post that came to my mind and started writing it. I stopped shortly after starting it because it seemed really far fetched. But after the release of the absolute dud, Barclay Arrival Premier, I don’t think it is too crazy anymore. Could banks do the unthinkable and stop offering credit card bonuses?

Could Banks do the Unthinkable?

Now before you start telling me I’m absolutely crazy and there is no way this would happen, hear me out. If you were told few years ago airlines and hotels would be moving from award charts to dynamic redemptions, you’d probably laugh.

We have seen a few changes to why I think banks removing bonuses, as we know them, could be the future of credit cards.

Banking Relationships:

There’s an inverse relationship between our credit card game and the economy. The better the economy, the worse for us. When the economy dips, we thrive.

As the economy improves banks have really tightened up and continue to do so.

Keeping Money with Banks:

If you take a look at Bank of America, their bonuses are mediocre at best.

Where Bank of America begins to get interesting is with their Preferred Reward Program. You receive a better credit card reward rate the more money you have with them.

Not only that, but it seems they making it harder for a credit card approval you if you don’t have a relationship with them. I’m just speaking from my most recent experience on this.

My USAA Limitless requires me to have a direct deposit of $1,000 or more per month to keep earning 2.5% cash back on all purchases. If not, I only earn 1.5% cash back. I do most of my banking with USAA, so this isn’t an issue. They reward me just a little bit more to bank with them vs someone who doesn’t.

Plus 2.5% cash back on all purchases makes this my non-bonus spend card. It’s just too good to not use.

Chase is even offering Ultimate Reward Points when take out a mortgage with Chase. The level of reward is based on the credit card you have with Chase.

Rewarded for Using Products:

Discover has used this method for a while now, where they will double your first year cash back, but no upfront bonus (or small amount through a personal referral).

The American Express Everyday Preferred and Everyday follow this idea. Use your card for a certain number of transactions and receive a bonus on your points earned. This makes it great for them and you.

Now add Barclay into the mix with their Arrival Premier. Although none of you should apply for that card, it’s just a bad card.

There is a reason for giving incentives on the back end…

Those incentives make you want to use those cards. If there isn’t an incentive you would just sock drawer it, right?

In addition, banks are really wanting to reward their “loyal” customers, not the ones who stop by for a bonus or two, then move on.

This seems to be a trend that banks are starting to incorporate. I think this type of structure will continue to grow as well.

Spending Bonuses:

While the Barclay Arrival Premier is a complete dud and I mean an absolute dud, I think it does offer insight to what the bank was thinking. They want to reward the customer who uses their product. I think this idea could be coming down the pipeline with other banks.

All these banks are looking to be your main squeeze, not your late night call. What Barclay is wanting to do is make this your top card by giving you extra points based on the your level of spending, without giving an upfront bonus.

Spend more, you are rewarded more than a person who spends less. Think of it as elite status for credit card earnings.

It’s smart on their part, but not what “we” want. We want the bonus upfront and not wait 365 days to get it. What if, a better card comes out? We have a tough decision to make.

Some Co-Branded Cards Offer This:

You see these “bonuses” with a few airline cards and even hotel cards where you earn a free night/companion ticket after spending “X amount” on their credit cards. But how many of you actually trying to reach those “bonuses?”

Sorry, but spending $30,000 on the British Airways card for a “free” companion ticket doesn’t really get me excited (especially with those taxes). That’s probably due to the fact my USAA Limitless earns 2.5%, which would be $750 in earnings and that’s plenty for a ticket across the pond.

I think we will see more of this practice in the future, but the offers will be improved so they’d be worth it. There are just too many people entering the game now for banks to keep these types of bonuses around.

More Perks:

We are seeing more “premium” credit cards hit the market. They often come with a large annual fee, some sort of airline/travel credit, and possibly status for having the card.

Let’s be honest, everyone now has Priority Pass Lounge access (myself included), TSA Precheck, or Global Entry.

You can even earn Hilton Diamond status for $450 a year. That seems far more enticing than the stay/night requirement from Hilton.

Some banks try to have some perk that is different than the others, but overall many are very much the same just a slight variation.

To help with these cost since we all want these benefits, this makes another possibility the bonus could be “enhanced.”

But Could it Actually Happen:

That’s the big question, right? The “Golden Age” of credit card churning seem to be behind us for now. With that in mind, I think it is completely possible.

All it takes is one bank to start a trend. Just like airlines are moving to dynamic awards, now hotels are following that trend.

I think Barclay could have started that trend. Lucky for us, Barclay gave many people no reason to actually apply for that card.

That isn’t to say someone like Chase, American Express, etc aren’t paying attention.

Citi has removed the bonuses on their Thank You Premier and Prestige in the past. I would say it has been fairly unsuccessful. That’s because we know they will bring it back. If they removed them, but replaced it with some sort of back end benefit, people might just bite.

Bonuses cost banks a lot of money and they want people to be using their cards more than once a year on a pack of gum to keep the card active.

This is why we will see the bonuses we know and love today, be replaced with back end spending bonuses. But, this isn’t necessarily bad for us.

Where it Would Happen First:

What I have found interesting, programs are devaluing their programs to a point where they are cannibalizing their own co-branded credit cards. There are very few reasons to put any real spending on co-branded credit card.

Outside of the sign up bonus and a few benefits, it’s getting harder to recommend a co-branded card. The earning rates aren’t appealing for co-branded credit cards.

Most people would do better with either a flexible currency card, or even cash back card. Personally, I only keep a couple of co-branded cards in my wallet just for the benefits. They never see the light of day outside of those.

My Hilton Ascend gives me Priority Pass Access, the US Bank FlexPerk gives me GoGo WiFi Access , and the airline cards I have give me priority boarding and a free checked bag. Some of these won’t even be renewed when the annual fee hits.

Banks could get to a point where they find buying the miles for co-branded credit cards, not worth the money. This would also help them push their own credit cards. Which are seeming to offer more value as airlines/hotels devalue their programs.

It Would Progress:

If the idea above were to be successful, then banks would eventually begin to change their own credit cards bonus structure.

The upfront bonus would be removed with more back end bonuses and keep those cards towards the front of your wallet. Those interchange fees add up for banks, and they want you to use those cards!

Removing bonuses to the back end would be a big change and mostly upset many. In the larger picture this could workout better year after year.

While I think the Barclay Arrival Premier is a dud, how many of you would now prefer to earn a back end bonus of Ultimate Reward Points for spending X amount, then receive it again the next year?

This would affect the new comers to the game and would alter credit card strategies of existing cards you already have.

The game is all about adapting and if these changes were to take place, we would need to adapt once again.

Conclusion:

I think Barclay offering a back end bonus vs upfront bonus could potentially set off a new trend for credit card bonus structure. There are many new people to the game and banks want to reward customers who actually use their products.

It seems the days of churning are slowing down. They’ll be back at some point though.

What do you think? Do you see credit card bonuses changing, or am I just crazy? 🙂

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About the author

Dustin

After completing 6 years of pharmacy school, I finally had the time to travel. I started investigating ways to travel for less and when I redeemed my first award flight for my honeymoon, I knew I was hooked! Fast forward a couple of years and places I had never dreamed of visiting like Budapest, Honolulu, Bermuda and many other places where all within my reach, and for little to no money out of my pocket. Now, I have collected well over a million points and miles, and try to help people travel for less on their wallet.

13 Comments

  • I’m not quite sure whether other banks will attempt to join Barclays’ race to the bottom. I’m not an avid churner, I’m under 5/24, but I like a nice sign up bonus. I put substantial spend on my cards – primarily Amex and Chase (actual spend and zero manufactured spend).

    The CSR 100k bonus is what made me loyal to Chase ever since the launch of the card. I ended up shifting a major chunk of my spend from Amex to Chase because of the nice 100k sign up bonus and the great perks of the CSR. While I can understand that banks want to weed out churners who are just there for the bonuses, I’m sure they have the data and are worried about upsetting customers like me who like nice bonuses but are savvy with their spending and also put a substantial amount of spend on their cards.

    • Hey SRT,

      Those UR points are very valuable for sure! I hope they keep bonuses around, but we will see!

      Thanks for reading! I appreciate it!
      Dustin

    • Hey Dan!

      haha! It would only take 2 years of spending on this card to have yourself a nice flight!

      Thanks for reading! I appreciate it!
      Dustin

  • I totally agree with your analysis. I’m not the customer the banks want, and I’m now working to become that customer again. It will be a dull 18 months while I wait for my 5/24 to reset, but I’m starting to feel like I’m not really missing out (hello, new IHG and barclays).

    • Hey Taryn,

      Yeah, unfortunately the recent cards aren’t very interesting. That includes the new SPG/Marriott cards. Hard pass from me!

      Thanks for reading! I appreciate it!
      Dustin

  • On the contrary, we’ve seen the bonuses increased in the last few years. They are going up, not down. And that’s because of competition in the banking sector, plus devaluation of some point currencies. Banks tighten the rules for number/frequency people can apply – so now it’s more fare game on both sides. So the bonuses will stay, unless US economy improves tremendously.

    • Hey Aleks,

      We have seen some bonuses increase of course and banks are always going to fight over us. Hopefully they keep doing that for a long time!

      Thanks for reading! I appreciate it!
      Dustin

  • The change to the SPG cards supports you thesis. The major banks moved in this direction with checking accounts, and they are following suit with credit cards.

    • Hey Vet&Banker,

      Yeah that SPG card is a devaluation in my mind. Plus I see the changes to the Marriott program as a negative as well!

      I also just saw Chase is targeting people for 3x in year 1 for Chase Freedom Unlimited. They must believe most people won’t spend the $10k needed to break even on the bonus. Could be nothing, but it could be testing for a Discover it Miles type of card too.

      Thanks for reading! I appreciate it!
      Dustin

  • If the Wells Fargo scandal was any indication, then banks incentivize increasing the number of customers signing up for their products. This is likely due to the fact that every quarter they must report to their board of directors and go over trends between the last quarter and the current one.

    There are just not that many people who spend 100k on their cards every year. I would imagine there are far more people who carry a balance and pay interest on it. Those are the two groups we are talking about targeting here. The higher income, likely well-organized spenders who will use the card but likely not carry a balance vs. the more moderate income spenders who will have a life emergency come up, put several thousand dollars on the card and then take a while to pay it off.

    As long as the banks aren’t actively losing money on the second group of customers then there seems to be little reason to bite the hand that feeds them. At 18% interest, that is compounded monthly, they are potentially a very lucrative group. And a free trip courtesy of signing up for and spending on a card seems to be enough reason to get that card into their wallet and hopefully (from the banks perspective) for them to carry a balance on.

    Looking at bank profits over the ‘golden era” of card churning one would be hard pressed to make the argument that banks suffered much because of credit card churning. Chase’s current attempts to go after churners are a relative drop in the bucket and having personally recently been approved for their new Iberia card, despite half a decade of churning and not having been 5/24 since my first AOR in 2012, I don’t feel too worried.

    One could even make the argument that churners are not even an issue, as the fee that CC companies collect on transactions is enough to cover up to about 2% cash back cards (CC companies get 2.5-3% generally).

    The way to stop churning is to generally either lower the bonus amounts or increase the spend amounts to get a bonus. $3000 in spend as a requirement nets the banks about $270, if they can acquire the miles or points for that amount or less then they already made money. If it costs more than that then they obviously need you to spend more on the card or carry a balance to make a profit.

    Most people are not churners. This is why banks have been able to grow profit margins on credit cards during the golden age of churners. We account for such a tiny fraction that it may not make much sense for banks to expend a lot on sticking it to us. Especially if the amounts involved are relatively marginal.

    It reminds me of a story about how Canadian Parliament formed a commission to hunt down and eliminate waste and corruption in Parliament. In the end they spend about $32 million and found almost $1 million in waste. Their annual savings for cracking down on this waste were insignificant and considering inflation, likely won’t be made back in anyone’s lifetime.

    Banks face the same conundrum, crack down to show them how tough they are and risk both losing money and angering investors or letting it happen and have it as a cost of doing business. Right now everything points to having it be a cost of doing business. Much like award programs seem to regard angering their members as just another cost of running an awards program. Considering that they have proven over and over again that consumers loyalty is to primarily to their own pocketbooks, which is to say that they go for the least egregious option that comes at the lowest cost, loyalty programs are the ones more likely to change the equation.

    When they devalue they get to write down a liability. They just had a 50 million dollar liability and then suddenly they increase the cost of their awards and they reduce their liability to 45 million. A pretty sweet deal from their end. They just have to watch out for angering the banks that purchase their miles/point by the hundreds of millions or customers being so incensed that they actively boycott the brand out of spite.

    So, in summary, things are likely to remain relatively stable unless a fundamental part of the underlying economic equation changes. Banks are beholden to their investors, loyalty programs need to avoid really pissing off their customers or the banks that they sell points to and the consumer remains a free agent, who is both the author and the victim of these successive devaluations. When the economy takes a spill things will get shaken up, but until then it should be relatively smooth sailing.

  • Will banks get rid of sign-up bonuses? Not yet, but merchant fees will come down, the value the banks pay for loyalty points against their perceived values could crossover, and banks will measure the value of the customer.

    See the Chase Reverse. The sign-ups cost them a lot and they may never break even from all those 100ks, but there was almost zero initial marketing costs as it was entirely word-of-mouth. The JPM reporting results indicate that had a high retention of a very high profile consumer which is a valuable consumer as shown by the crossover of the Sapphire holders they were able sell other services to, see mortgages. Bonuses on these type of cards stick as flagship offerings that pull in a certain consumer, even if they need to be a loss-leader in order to attract that consumer. Once you’re in their ecosystem, then your earning structure will be tiered to incentive you to consolidate your other needs under their umbrella, since they likely are not carrying a balance.

    Threat is on the ‘sock drawer’ and ‘review on annual fee’ type cards. Other than the spend requirement there is not much value in bank issuing the card (and it may cannibalize your spending you’d otherwise make on existing cards during). With revenue-based redemptions and devaluations you have seen that co-branded offerings do not appeal to even casual users, and failing to translate into a greater ‘share of your wallet’. Why provide a sign-up bonus on a card people maintain for attached perks and do not use when you could alternatively tag that as a benefit option on a few select cards? Particularly as we move away from physical cards and use NFC payments. Consumer A has $X worth of value as a customer of our bank which awards them option to select X number of annual perks from the list (hotel points/award night, airline status, etc), or becomes Gold/Platinum tier and access to greater perks. Hotel/Airline that devalue or offer inferior options won’t be selected from the perk list and banks will stop bulk buying that option, which would keep them honest with their own programs. A bank loyalty/status program is far stickier than a travel program; how many times would you shop for a mortgage or checking account a year versus booking a flight? Sign-up bonuses will be used to poach these high-end users.

    The ‘balance carrier’ type consumer cards will still offer a bonus to attract that user along with 0% APR periods to fight off people simply consolidating them to a fintech loan.

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