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Consumers not the only parties who stand to gain from cash-back cards

Cash-back rewards represent a way to attract, retain and encourage usage among credit card customers. Now, banks increasingly view them as a means to strengthen and boost the profitability of existing consumer banking relationships.

KeyCorp became the latest in a growing list of banks seeking to build synergies among its various consumer products, introducing a new credit card that provides a higher cash-back rewards rate to holders who also maintain a checking account and a savings or investment account.

The Key Cashback card offers a rewards rate of 2% on eligible purchases to KeyBank NA customers who meet that criteria, subject to minimum monthly balances and deposit activity. For those who do not, the cash-back rate is 50 basis points lower.

The card is part of the new financial wellness tools that Key said will allow its customers to save, earn money back and avoid fees. The bank said the extra cash back from the card could make a "significant difference" for customers looking to pay down debt and manage their credit.

Perceived synergies between cards and other banking products are nothing new, but they have been increasingly in focus in 2019. For at least one prominent institution, driving engagement between cards and other products has generated a range of benefits.

According to statistics presented during a February investor day pertaining to what the bank classifies as "engaged" customers, JPMorgan Chase & Co. said households with two or more products across lines of business generated 2.6x as much pretax income in 2018 as card-only households.

JPMorgan Chase CFO Jennifer Piepszak said in February that multiproduct relationships complement the bank's "strong foundation of detection, decisioning and execution capabilities." The addition of a deposit relationship creates a "powerful data set" that results in higher approval rates and a 30% reduction in its card net charge-off rate, she said.

JPMorgan Chase reported that it saw more credit card loan growth from existing customers than new customers during the second quarter, something it characterized as a milestone in its ongoing efforts to broaden and deepen customer relationships. The bank is targeting the $250 billion in borrowings its existing card customers make from other institutions.

Synergies can run both ways as digital banking tools allow leading national credit card issuers to promote savings and checking products outside of their brick-and-mortar branch footprint.

Citigroup Inc. reported more than $2 billion in digital deposit sales during the first half of 2019, CFO Mark Mason said during a July conference call. He said nearly two-thirds of those sales came from outside of Citi's existing branch footprint, with about half of that amount from card customers it did not previously have a retail banking relationship with. Targeted marketings involving the promise of additional "ThankYou" rewards points or more benefits accruing from its "Double Cash" reward offering have aided the push.

Mason said he expects Citi's shift from a model where products were siloed to one that is "more geared towards the client" will help the company's margins.

Bank of America Corp. pitches a preferred rewards program where customers with qualifying combined balances in their banking and/or investment accounts above certain specified thresholds can earn bonus rewards ranging from 25% to 75% on eligible credit cards.

But as Key has shown, the largest card-issuing banks are not the only institutions utilizing cash-back rewards in ways that may broaden and deepen relationships.

PNC Financial Services Group Inc., for example, offers scaled points for customers who hold certain of its credit cards and meet criteria pertaining to balances or activity within their checking or virtual wallet accounts. Pentagon FCU's Honors Advantage card offers 2% cash-back rates to holders who also maintain a checking account or are members of the U.S. military.

Key reported credit card loans outstanding of $1.10 billion as of June 30, according to its most recent Form 10-Q, up slightly from $1.09 billion on the same date in 2018. It has been seven years since the bank acquired approximately $725 million in Key-branded credit card assets from a US Bancorp subsidiary as part of its plan to self-issue cards.