Credit and Reward Wars in Retreat? Business Model Gone Awry?

by Brian Riley 0

When American Express starts retreating on rewards, it is time to take notice; if you did not have a chance to read our July 2017 research note on Premium Travel Reward Cards: High Profile but Unsustainable , now is a good time.

Have issuers tilted the scales?

  • A string of co-brand credit-card wins is getting expensive for American Express Co.
  • The cost of paying out rewards to card members climbed 12 percent to $1.98 billion in the fourth quarter, the most in at least seven years, according to data compiled by Bloomberg.

The credit card model, both for branded and closed networks is undergoing stress.  Will reductions in rewards begin to offset non-interest revenue challenges/

  • AmEx has been spending more to ink co-brand deals after parting ways with Costco Wholesale Corp. and JetBlue Airways Corp. sparked the card issuer’s worst stock slump since the financial crisis.
  • Renewing the Marriott and Hilton deals will crimp earnings by more than $200 million this year, Chief Financial Officer Jeff Campbell said during a conference call with analysts on Thursday. He cited an increase in customer spending — especially on the firm’s recently retooled Platinum product — as one reason for the higher rewards costs in the quarter.

So, for now, start thinking about your rewards strategy before their value begins to diminish.  I you are an issuer, begin to think about how you can build a better value proposition without relying on expensive rewards.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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