Credit cards were once relatively straightforward products: banks extended credit, consumers spent money, and issuers earned revenue from fees and interest. Today, the largest card issuers are pursuing a far more ambitious objective.
Leading issuers are using credit cards to build ecosystems spanning shopping, travel, banking, and personalized financial services. The goal? To deepen customer relationships by capturing more of the financial activities that occur beyond the card itself.
As Brian Riley, Director of Credit at Javelin Strategy & Research, discussed in the Rewiring the Credit Card Value Proposition: From Best Card to Best Relationship report, there is a common theme underlying all of these efforts.
Namely, banks are no longer simply in an arms race to create products that generate the most fees and interest. Instead, they are competing to become a larger part of customers’ financial lives.
Stepping into E-Commerce
One of the most innovative strategies in recent years has been the introduction of Capital One Shopping. Offered as both an app and a browser extension, the platform gives users targeted deals on products and services.
This shopping tool differs significantly from the traditional card model in many ways, but perhaps the most striking distinction is that it is available to all consumers—not just Capital One customers.
Another key differentiator is that Capital One Shopping inserts itself between customers and merchants before transactions ever occur. For consumers, this offers considerable advantages, including the ability to compare prices, access discounts, and leverage the platform’s many rewards and incentives.
For Capital One, the benefits are equally significant. First, merchants commissions to be featured on the platform. Second, the service can be used both for advertising and customer acquisition. Third, the platform generates substantial amounts of customer data based on users’ shopping and purchasing activity.
Given the platform’s popularity, the strategy has been a clear success for Capital One. The app has become one of the most downloaded shopping apps in the world, narrowly trailing Walmart and Amazon while ranking ahead of Target.
Capturing the Customer Across Channels
A completely different—but no less successful—approach has been cultivated by Bank of America.
“They have amped up their rewards program so that based on the deposits you have, you can kick off rewards for your program,” Riley said. “If you have this minimum threshold, you have no-fee banking services and you get a 25% kicker on your rewards. You get a discount on foreign currency, so if you’re going to Canada and you want to get some Canadian bucks, you get 1% off on it. Auto loans get a benefit, home equity, and so forth—it scales up.”
While Bank of America has employed this strategy for more than a decade, the bank is updating the model this year to extend rewards to customers in lower deposit tiers while also enhancing benefits for those at the highest levels.
“When you’re a big depositor, you get bigger hits on it,” Riley said. “So instead of getting the 25% kicker here, you a get 75% bonus, and it works all the way through. Some of these pay off. If you have a mortgage and you save 37 basis points, that’s a lot of money. It’s the best program we’ve seen in the business for that.”
The objective of the program is to capture a customer’s financial activities across all channels, including lending, spending, and deposits.
This approach helps address one of the longstanding challenges: siloed systems that fail to provide a holistic view of the customer. By overcoming this issue, Bank of America gains a stronger ability to assess a customer’s financial situation and offer more relevant products.
It also enables the lender to better evaluate customer risk, which is an increasingly important capability as economic pressures have mounted and credit card debt has continued to rise.
Personalizing the Rewards Portfolio
In a different way, personalization is also a key component of Chase’s approach to credit products.
The lender recently highlighted how it is using technology, particularly artificial intelligence, to optimize its credit card program. AI can deliver customized offers and targeted pricing, while also supporting fraud prevention and risk mitigation.
At the same time, Chase has built a broader rewards portfolio featuring exclusive travel, dining, and shopping perks.
“Chase says, ‘Use our Chase United card because you like to travel and let me show you how you could benefit from that,’” Riley said. “They have this whole ecosystem of reward programs and lounges that you could get into, discounts for food and shopping, and being able to get into the hot New York restaurants with a reservation where you normally can’t get it.”
“It’s a very different spin,” he said. “Where Bank of America is looking for the whole relationship, Chase is focused highly on this piece.”
Beyond the Account
Bank of America’s holistic rewards program, Chase’s exclusive ecosystem, and Capital One’s e-commerce strategy exemplify the innovative approaches leading lenders are taking to credit card products.
The commonality among these programs is that issuers increasingly view credit cards as more than just a fee and interest generator.
“The main takeoff is they’re no longer looking at just the account and they’re looking at the full relationship,” Riley said.
