Big Banks Struggle With Generous Rewards Cards

U.S. banks are facing increased costs associated with their reward credit cards as a result of two years of increasing the rewards points they offered customers.

According to a report in The Wall Street Journal citing analysts and the companies, costs associated with rewards credit cards increased an average of 15 percent during the third quarter of 2018 for Bank of America, Citigroup, JPMorgan Chase, U.S. Bancorp, and Wells Fargo. In the case of JPMorgan, Securities and Exchange Commission filings show that as of the third quarter of 2018, JPMorgan credit card customers racked up $5.8 billion in rewards that haven’t been redeemed, which is up 53 percent from 2016. “For a lot of consumers, a credit card is the first step in a bigger financial relationship, and we’re already seeing success with Sapphire customers doing more business with Chase,” JPMorgan spokeswoman Mary Jane Rogers told The Wall Street Journal. The paper pointed to research from Mercator Advisory Group, a payments consulting firm, which found credit cards will have a return on assets of 3 percent this year at the 14 big banks that have a credit card business. That compares to 5 percent in 2014.

Adding to the woes of the banks, the WSJ reported interchange fees, which are the fees it charges merchants for purchases on credit cards, are facing pressure. That’s bad news for the banks, given those fees are what bankroll rewards programs. With retailers trying to lower the fees they pay, it’s prompting fears by bank executives that it could make rewards programs at such generous levels impossible. The paper noted that Amazon, Target and Home Depot are among the merchants pushing for lower interchange fees.

As a result of the pressure, the big banks — including JPMorgan and Citigroup — have been looking at how to reduce or overhaul the rewards cards, people familiar with the matter told the WSJ. While the banks don’t want to end the rewards programs, they are looking at lowering upfront bonuses and changing the way they incentivize people to use their credit cards.  For instance, the paper reported executives at JPMorgan looked at whether to stop letting cardholders combine points from multiple cards, while Citigroup will cap the number of times per year card members with its Prestige credit card get a fourth night free when staying at hotels.  Meanwhile, the WSJ reported American Express is rolling out cards that have fewer sign-up bonus points.



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