American Express raised its rates on the legendary Platinum Card. In an article this morning, The American Banker wondered if the firm is jumping the gun on the rate increase. The card, now priced at a whopping $695 per year, offers a first-year reward of 100,000 points after $6,000 in purchasing, which more than covers the annual fee. The features beyond the bonus are rich, with a 10X multiplier at restaurants and 5X multipliers on flights and hotels booked through American Express Travel.
Chase Sapphire Preferred cardholders, beware. Unfortunately, your cherished metal card may follow suit if you look at card revenue numbers this year.
Both cards have solid reward features. I don’t know if I will ever own an American Express Platinum, but I know many cardholders who love it. For me, a favorite card is the American Express Blue Preferred card. Call me cheap, but once the annual fee passes $99, I tend to pull back.
American Express does know how to engineer credit cards for points. On my Amex, I pay $99 annually, and year to date, my rewards are over $400, driven by 6% at supermarkets ($262.24), 6% from streaming services ($18.17), 3% at gas stations ($29.34), 3% for transit ($2.82), 1% for Other ($123.71). That’s a great value prop. I’m pretty sure that I paid $0.00 in interest year to date. I’d keep the card, even if Amex follows a linear increase and sets the new price at $125. I like the ROI.
But, why raise an annual fee, you ask? Says the American Banker:
- Some observers question whether it’s too soon to raise fees on luxury credit cards that are typically used heavily for travel when it’s still so early in the post-pandemic recovery phase.
- But as it overhauls the Platinum card, Amex also appears to be going after higher-income, digitally savvy millennials, the first wave of whom turn 40 this year.
- New perks that come with the higher-priced card build on services Amex introduced during the pandemic that were a hit with home-bound users, including credits for streaming digital entertainment and virtual and in-person exercise classes.
- Amex Platinum customers will receive up to $240 in credits annually for purchases or subscriptions on Audible, The New York Times, SiriusXM, and Peacock. A $300 annual statement credit is also newly available for Equinox fitness clubs or the Equinox+ virtual workout app.
Mercator thinks the backdrop on upcoming rate increases in credit card annual fees is lost credit card revenue for the 150 million payment cards with annual fees. Revolving payments are down, which means interest revenue is under stress. Fee income took a hit during COVID-19, and with low delinquencies and forbearances. And interchange- think about how retail sales struggled last year. In short:
- Some issuers are starting to beef up their card programs in hopes that the big spenders will return, but don’t be too sure that’s happening yet.
- Revolving credit card balances took a dive during the pandemic when travel spending halted. They have stabilized but are still not growing.
- This quarter will be stronger because recent stress tests indicate that some reserves can be freed, but unless the tide turns, the third quarter will be challenging for most credit-card issuers.
Will the rate rise cause high attrition at American Express? Probably not on a net basis; the card is favored by many. And remember: “don’t leave home without it.”
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
