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Less rewarding cards landscape on the horizon, but not here yet


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Less rewarding cards landscape on the horizon, but not here yet

Predictions about the decline in the richness of credit card rewards programs have yet to broadly take hold.

Weeks after a Wall Street Journal report raised questions about banks' actual and prospective efforts to pull back the rewards they offer to prospective and existing customers, the largest U.S. card issuer said its overarching philosophy surrounding account acquisition and retention has not changed.

"Rewards is a very important part of driving engaged relationships with our customers," said JPMorgan Chase & Co. CFO Marianne Lake during a Jan. 15 conference call. "Customers are very attuned to it ... and so for us, engaged relationships drive profitability." And, she added, the card business remains "very profitable."

Chase continually makes adjustments to its products, the CFO explained, but "it's not the case that we are looking at a meaningful pullback in rewards."

It has been two years since the bank made arguably the most high-profile retreat on the rewards front in the current cycle when it halved the initial 100,000-point signup bonus, subject to the holder spending $4,000 on purchases in the first three months from account opening, for its Chase Sapphire Reserve card. The company continues to offer 50,000 bonus points for opening that card, and it has since extended an offer to existing holders to earn 60,000 points for opening a checking account through the new Sapphire Banking brand. The offer requires customers to keep a minimum balance of at least $75,000 for a period of 90 days, and customers must maintain an average balance of $75,000 in eligible deposits or investments to avoid a $25 monthly service fee.

"If you think about things like Sapphire Banking, where we're looking to bring the impact of our products together, we're continuing to offer rewards-based incentives to drive engagement with our customers," Lake said.

The CFO added that Chase has witnessed "a lot of competitive response" to its products, but she said that has not lowered the bank's ability to acquire new accounts. To that end, Chase opened approximately 2 million new accounts in the fourth quarter of 2018, according to a statistical supplement, up from 1.9 million in each of the prior two quarters and in the fourth quarter of 2017. Chase's account openings reached their highest point since 2010 during the final three quarters of 2016 at 2.7 million per period. The 100,000-point Sapphire Reserve promotion was running for approximately half of that nine-month stretch.

Bank of America Corp. and Wells Fargo & Co., two other card issuers that reported earnings in recent days, showed mixed results in their account opening statistics. The former's U.S. card openings of less than 1.05 million marked a decline of 7.9% on a year-over-year basis, and it represented the lowest tally for the bank in any period since the first quarter of 2014. The latter's 449,000 new consumer card accounts fell sequentially due to seasonality, but it marked an increase of 18.8% year over year. Wells Fargo cited the July 2018 introduction of the new Propel card in partnership with American Express Co. for the favorable comparison.

The Propel card currently offers 30,000 bonus points to new holders who spend at least $3,000 in the first three months from account opening. Its value proposition for holders is highlighted by triple points on spending for certain categories of products and services, making it what Wells Fargo executives have previously characterized as one of the industry's richest no-annual-fee rewards card offerings.

Discover Financial Services has taken a different approach to targeting rewards-oriented customers with a cashback match program. Instead of offering a large amount of points upfront subject to a certain amount of usage within the first few months, the Discover program pledges to match holders' cashback bonuses during the first year — a strategy that avoids the practice of some customers in which they open cards to receive an introductory offer.

President and CEO Roger Hochschild said during an appearance at an investor conference in December 2018 that the rising-interest-rate environment may lead competitors to dial back the richness of their offers, particularly for customers classified as "transactors" who engage in high levels of spending but pay off their balances each month. Profitability is negatively impacted by that category of business since "you're funding the flow and you don't have any offsetting interest income."

As a result, Hochschild said, "I do think rewards competition has plateaued ... and over the coming year I think we may even see some of the richer programs have to cut back what they're offering to customers."