Credit Cards Offering Perks For Good Credit Customers

While most customers are receiving costly bad news about annual fees or rate hikes from their credit card issuers, select cardholders are unexpectedly receiving new credit card perks such as more generous rewards programs.

Citigroup Inc. upgraded select customers’ American Airline-stamped credit cards to earn 1.2 miles for every dollar spent, up from 1 mile per dollar. JP Morgan Chase and Co. also improved their customers British Airway card to 1.25 miles, also up from 1 mile per dollar. Chase, and likely more issuers in the near future, did not disclose specifics but enhanced rewards earning power for their Marriott cards. Citigroup, and presumably other issuers, announced that these card enhancements are for customers with good credit standing.

Using reward incentives to encourage cardholders to spend more—rather than penalize cardholders or excessively charge them—is a new tactic to recoup money lost to the CARD Act without hurting customer loyalty. This move is certainly a 180 degree turn from the past months of cutting back rewards programs, implementing annual fees, unexpected charges, inactivity penalties, and more. These so-called “earning accelerators” are designed to get cardholders to use one credit card over another.

One strategy is to profit from the transaction fees that merchants pay. Every time a credit card is swiped, 1 to 2.2 percent of the transaction goes to the bank that issued the card. Issuers are currently competing with debit cards, which have surpassed credit cards transactions since 2005 and also get lower transactions fees than credit cards. Polishing up rewards programs for credit cards is needed to make them outshine debit cards in the eyes of their most profitable customers.

Another strategy is, in industry-speak, “breakage.” Basically, issuers don’t mind if you pile up unused rewards because issuers get a portion of what they spend on rewards programs back as part of their bottom line. With nearly $2.6 billion spent on rewards programs and an estimated 5%-30% of rewards unused in any program, issuers stand to earn a lot from breakage.

These are just a few of the perks issuers are rolling out in the next few months in order to keep their best customers charging on credit. We’ll stay tuned to see if these moves are enough to outpace the past months of price-gouging industry practices to get consumers to switch credit cards to the top of their wallets.