Co-branded credit cards play an essential part in account acquisition and retention. By linking up with a partner, card companies and merchants can create a symbiotic relationship. Use the card, earn a point. Use the card at the merchant-partner, and you will likely find additional bonuses and discounts.
Reward partners fall into four categories: general retailers, airline companies, automobiles, cruise lines, hotels, and other types. The travel-related sectors are particularly sticky because they offer aspirational family events, whether the goal is a family vacation to Europe or a second-honeymoon to Hawaii.
They work well most of the time, but not always. Consider the COVID Pandemic.
Consider the boom in travel premium cards less than four years ago. Chase threw down the proverbial gauntlet with its highly successful Sapphire card. For an unusually high fee of almost $500, new cardmembers received up to a 100,000 point bonus reward. The card had panache, and the bonus outweighed the expense.
Mainstream travel co-branded cards, such as American Express’ Delta cards, Citi’s American Airlines cards, or Chases’ United card scrambled to protect their business proposition. Then, the trend for cash-back rewards entered the picture, long after Discover pioneered the option.
With the pandemic came a reduced ability and desire to travel, making airline and hotel cards less attractive to the primary consumer.
Today’s read comes from the American Banker.
- The nation’s largest credit card issuers, forced during the pandemic to rely less on travel-related perks to attract customers, are now trying to gauge how quickly Americans will start flying again.
- The speed at which air travel resumes figures to affect the profitability of banks that lean on travel rewards offers to drive loan growth in the credit card business.
- Those companies include JPMorgan Chase, which provides a $300 annual travel credit on its Sapphire Reserve card; American Express, which offers cards with Delta Air Lines and the hotel chains Hilton and Marriott; and Citigroup, a longtime partner of American Airlines.
- Certainly travel has been one of the hardest-hit categories,” Pam Habner, Citi’s head of U.S. branded cards and lending, said in a recent interview. “We feel pretty optimistic that that will turn around as we turn the corner to the back half of this year and into 2022, as people become vaccinated and they feel more comfortable traveling. I think there’s pent-up demand.”
The article draws data from a Gigapoints/Ipsos survey which indicates that only 9% of cardholders prefer airline miles, and another 4% prefer hotel points. My personal favorite, cash back, received a 73% preference rating. Keep in mind, the points purpose, beyond rewarding the cardholder, is to increase transaction volume, card spend, and account retention.
- Industry observers expect strong competition in credit card rewards this year, as issuers offer more attractive perks in an effort to rebuild loan portfolios that were eroded during the pandemic. Card companies have long used travel-related rewards to win the business of wealthier consumers, but many Americans who were stuck at home during the pandemic have been finding cash-back offers more attractive.
Two top firms in rewards include Amex and Discover. Discover rocked the rewards industry back in about 1988 and has been progressive in cash-backs since.
- Amex, a leader in hotel and airline cards, started offering statement credits for cellphone bills. Citi allowed customers of its Prestige card to apply their $250 travel credit to spending at supermarkets and restaurants. Chase Sapphire Reserve cardholders became eligible for up to $120 in credit for Peloton home-exercise memberships.
- The card issuers had to pivot quickly. At Discover Financial Services, some timelines were accelerated given the dramatic shift in customer spending habits, said Gaurav Sharma, senior vice president of acquisition marketing at the Riverwoods, Ill., company. One change that Discover made last summer was to allow cardholders to redeem miles at gas stations.
People are getting itchy about attending that excellent business conference in Florida, NYC, or SFO.
- While Citi expects consumer travel to rebound throughout this year, Habner acknowledged that business travel and overseas flights will likely take longer to bounce back. Last Thursday, 1.4 million travelers passed through Transportation Security Administration checkpoints, the highest number in more than a year, but still down 39% from the same date in 2019.
- While Habner said that Citi’s customer attrition has fallen to a record-low level, she also acknowledged that it has become harder to find new enrollees for travel-related credit cards at a time when air travel has plunged. In the fourth quarter of 2020, global revenue in Citi’s card business fell by 18% from the same period a year earlier.
- At JPMorgan Chase, credit card loans outstanding fell by 15% over the same one-year period. Still, the nation’s largest bank recently placed a long-term bet on the rebound of the travel sector, purchasing certain assets of a credit card loyalty program service provider called cxLoyalty.
- When asked about the acquisition during its most recent earnings call, JPMorgan executives said that only about 30% of the $140 billion that the company’s customers spend on travel currently goes through Chase. “So there’s a huge opportunity to capture a greater share,” said Chief Financial Officer Jennifer Piepszak.
I am ready for a good old-fashioned business trip, and I bet you are too. And, a family vacation wouldn’t be bad once everyone gets their vaccine. Maybe it is time to take the airline credit cards out of the family safe.
Overview Provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group