Top US banks such as Bank of America (BofA), Chase, Citi and Wells Fargo have been investing heavily in their credit card rewards programs to attract new cardholders and retain the loyalty of their existing customers. Robin Arnfield reports

A report by Nomura Instinet analysts Bill Carcache and Yuman Lui, Rewards War Update, estimates that, between 2010 and 2016, the six largest US credit card issuers paid out over $100bn in credit card rewards, which have grown at a compound annual rate of around 14% over that period.

“Since 2010, American Express’s (Amex) rewards expense has increased by only 36% versus the more than doubling of rewards that we’ve seen at other issuers – clear evidence of the heightened competitive intensity that the industry is experiencing,” the Nomura report says.

“Amex is no longer the clear rewards leader it once was. We estimate that the rewards rate that Amex customers are currently receiving represents roughly half of what Visa and MasterCard issuers are paying their premium cardholders on competing products. We expect Amex to face persistent upward pressure on its rewards expense, particularly in a market where heightened transparency exists around the value of rewards and consumers have no tolerance for being short-changed.”

Rewards payouts

Nomura estimates that Amex paid $6.8bn in credit card rewards in 2016, down from $7bn in 2015, while Chase increased its payouts from $5bn in 2015 to an estimated $6.6bn in 2016.

BofA increased its payouts from $1.7bn in 2015 to an estimated $2bn in 2016, while Citi’s payouts doubled from $1.3bn to an estimated $2.6bn, Capital One increased its payouts from $2.7bn to an estimated $3.2bn, and Discover Financial Services increased its payouts from $1.3bn to an estimated $1.4bn.

Once the clear US credit card rewards leader, Amex is no longer the clear standout it was, and BofA, Capital One, Citi, Chase and Discover have truly stepped up their game, Nomura says. “Attractive credit card rewards like these have fuelled credit card spending volumes, with purchase volume growth increasing at a compound annual growth rate of around 8% over the 2010-16 timeframe,” it says. “Notably, the growth rate in credit card rewards expense (around 14%) has outpaced the growth rate in spending volumes by around 500bps.”

Nomura says that the $13.9bn increase in gross credit card interchange revenues that issuers generated between 2010 and 2016 was almost entirely paid out over the same period via higher rewards. The investment firm says its analysis shows that issuers aren’t generating much of an earnings benefit from rewards-fuelled growth in credit card spending volumes.

“Instead, we believe most issuers are seeking to use their reward programs to drive customer engagement, with the end goal of capturing the benefit of any revolving behaviour,” Nomura says. “The issuers have succeeded, with industry balances growing at the fastest rate that we’ve seen since the Great Recession”

The increase in account numbers

The American Bankers Association’s (ABA) November 2016 Monitor, which reflects credit card data from April to June 2016, found that the number of new US credit card accounts rose to 84.9 million in Q2 2016, up 11% from a year earlier. The steady growth in new accounts contributed to a new post-recession high of 342 million total open credit card accounts, the ABA said.

Monthly purchase volumes rose 5.1% for sub-prime credit card accounts, 6.9% for prime accounts and 8.3% for super-prime accounts in the second quarter of 2016 compared to the same period a year earlier, the ABA reported.

“While the number of new credit card accounts rose to a new post-recession high of 84.9 million, sub-prime accounts comprised just 20% of this amount — down from 28% in early 2009 and virtually unchanged for the last four years,” the ABA said. “In addition, the average credit line for a sub-prime account has risen slowly (7%) over the last three years, and remains 25% below post-recession levels.”

According to “U.S. Credit Card Issuers’ Digital Account-Opening Processes,” a report by Tiffani Montez, a senior analyst at US-based financial research firm Aite Group, 127.4 million new US credit card accounts will be opened in 2020, growing by 18% from 104.7 million new accounts in 2015.

Aite Group estimates that digital channels — online and mobile — will overthrow physical channels—branch and call centre — in credit card application volume by 2017. The digital channels will reach 59% of all applications submitted, compared to 41% and 0.4%, respectively, for branches and call centres.

Aite Group believes four factors will drive this growth: younger members from Generation Y, born between 1988 and 1993, will apply for credit cards as they reach adulthood and experience life events; older Gen Yers, born between 1979 and 1987, will increase credit card ownership; issuers will loosen credit standards, increasing credit card supply; and consumer credit scores will improve.

No risk, no reward

According to a US survey Citi conducted for its 2016 Citi Cards Consumer Perspectives Study, published in July 2016, 67% of respondents said that rewards programmes influence their decision on choosing new credit cards, while 54% cited interest rates and 28% the sign-on bonus. The survey also found that 90% of respondents are less likely to switch credit card issuers or banks when they use their credit card rewards, and 86% of respondents take full advantage of their credit card rewards and, on average, redeem for rewards three times a year.

“Numerous research studies have shown that a rewards programme is a key influencer in determining which credit cards consumers choose,” says Aite Group’s Montez. “Today, rewards are ubiquitous. In order for credit card issuers to differentiate themselves, they have to compete on rewards schemes, and also look at other tactics to differentiate, such as credit monitoring services, financial management tools, reward redemption, and customer service.”

Montez says that research by Aite Group has found that nearly seven in 10 US consumers surveyed have a credit card.

According to the Consumer Financial Protection Bureau’s The Consumer Credit Card Market report, around half of US consumers have multiple credit cards, and the average holder of a US consumer credit card has nearly four such cards. “As of 2014, accounts with rewards programmes represent nearly two-thirds of all credit card balances and four-fifths of all credit card spending,” the CFPB report said.

“US consumers may take out additional credit cards from other issuers because of attractive loyalty offers,” Montez says. “Since the average cardholder has nearly four credit cards, this indicates that consumers hold credit cards from multiple FIs and, since rewards are a key influencer, they likely hold credit cards from outside their FI that have attractive reward offers. Cashback rewards are the most widely distributed type of reward across credit cardholders, followed by travel reward cards.”

J.D. Power’s 2016 US Credit Card Satisfaction Study found that over 20% of US customers have a credit card whose fees or rewards are not aligned with their actual purchase habits.

The study reported that, while their levels of satisfaction are not dramatically different, customers who have a wrong card, compared with those with a card better suited to their needs, spend less per month on their primary card ($783 versus $1,035); use their card for a smaller share of their total spend — cash and debit card spend — (37% versus 45%); and are more likely to switch cards (21% versus 9%).

Airline co-branded cards, which usually charge an annual fee of $75 or more, are popular with credit card customers. However, the J.D. Power study found that 44% of airline card customers have the wrong card for the following reasons: they spend less than $500 per month on the card (the typical amount needed to earn enough rewards to cover the average annual fee); they haven’t used the airline benefits accrued in the past 12 months; or they haven’t redeemed rewards in the past 18 months.


Recent US credit card rewards enhancements include point transfer programmes being provided within the major credit card rewards programmes – Bank of America’s Ultimate Rewards, Amex’s Membership Rewards, and Citi’s ThankYou.

Also, issuers have been partnering with specific merchants to expand their programs’ coverage, Katherine Siegrist, a manager specialising in credit card issuing at First Annapolis wrote in the US consultancy’s Navigator publication.

“Citi and Amex have partnerships with Best Buy, Walmart, and, among others that allow customers to pay with points online and in some cases pick up their items in store,” Siegrist wrote. “More recently, Amex has forged relationships with specific merchants, such as McDonalds and Uber, to allow for a true pay-with-points option as part of the point-of-sale experience.”

Also, as consumers increasingly embrace digital technology, organisations are developing distinctive customer and merchant experiences in which goods, services, payments, benefits in the form of offers or loyalty programmes, and insights are linked, Siegrist wrote.

“Issuers are experimenting with real-time rewards in a number of different ways,” she noted. “Wells Fargo integrated its rewards platform with its ATM network, allowing customers to redeem points for cash in $20 increments, and BBVA launched an ‘instant’ cash back experience on the heels of its mobile wallet roll out. The new feature notifies cardholders of their cash back balances upon using their BBVA credit cards and allows them to redeem their rewards by replying back to the message.

“Chase has heavily invested in its mobile application and became one of the first financial institutions to implement a true POS redemption scheme with roughly 30 merchants as redemption partners.”

Bank of America

“We have simplified our product/reward value propositions focusing on a core offering of BankAmericard Cash 123, Travel Rewards, and our various co-brand and affinity programs providing customers with the value they seek in a clear, understandable, and transparent manner,” Mike Simpson, Co-brand and Affinity Products Executive for Bank of America, told First Annapolis’ Navigator publication in October 2016.

“We have a balanced approach,” Jason Gaughan, a credit card executive at Bank of America (BofA), tells CI. “We want to offer competitive products, and we do that with our Cash 123 credit rewards programme which we enhanced in June 2016 and our Travel Rewards product. Being competitive on the product side is important, but our overall strategy is responsible growth and incrementally rewarding our existing customers for the deposit relationship and other relationships they have with the bank. Our focus is on growing card relationships steadily and responsibly with our existing customers.”

The Cash 123 card has no fee and offers 1% cashback on all purchases, 2% on grocery store and wholesale club shopping, and 3% on petrol purchases, while BofA’s Travel Rewards card has no fee, 1.5x rewards, no blackouts, no expiration, and no foreign transaction fees.

Gaughan says BofA’s Preferred Rewards programme is unique as it looks holistically at a client’s relationship with the bank. “Depending on how much on deposit you have with us, you’ll either get 25% more to 75% more on your rewards,” Gaughan says. “We want to have customers who have multiple relationships with us and use the tools we’ve built for them like our mobile banking app not just for one product but for a multitude of products.”

Gaughan says about 60% of BofA’s credit card accounts are customers with an existing relationship with the bank, and 40% are customers who are new to BofA. “We find that it’s easier to acquire new customers as banking customers first and then give them a credit card, although we have had success in converting credit card-only customers to BofA customers,” he says.

According to Gaughan, BofA is the third largest US credit card issuer. “If you exclude our competitors’ private-label store cards, we’re number two,” he notes. “BofA doesn’t do private-label cards although it does co-branded Visa and MasterCard credit cards with retailers. Co-brand partnerships are an important part of our growth strategy, and ensure we are making connections and providing loyal clients with card programmes that make their financial lives better.”

BofA’s major co-brand relationships include Alaska Airlines, AAA (American Automobile Association), Major League Baseball, Bass Pro Shops, and Norwegian and Royal Caribbean Cruise Lines.

“Our focus includes (co-brand) partners with strong brand recognition, a unique loyalty programme, and value proposition that resonates with customers, strong marketing distribution channels and a commitment to the customer experience (from application through reward redemption),” Mike Simpson, Co-brand and Affinity Products Executive for Bank of America, told First Annapolis’s Navigator publication.

“Typically, these partners are in the travel vertical, such as airline, hotel, and cruise lines as well as large providers in the service and retail sectors. Still, we have quite a few successful programmes in the collegiate and professional association sectors that I would call traditional affinity as opposed to co-brand. In addition, we routinely seek introductions and conversations with a host of non-traditional partners in emerging markets to ensure we don’t miss that next big opportunity.”


In September 2016, Chase launched the Chase Experiences platform, which provides a central rewards destination for its cardholders. “Cardholders can visit to see the latest list of eligible card products and available experiences,” a Chase spokesperson says.

Chase offers a proprietary premier rewards platform, Chase Ultimate Rewards, for eligible Chase credit cardholders, including Chase Sapphire Preferred, Chase Sapphire Reserve, Freedom and Freedom Unlimited, and Ink Plus.

“Ultimate Rewards offers options especially for those who seek travel redemption alternatives,” says the Chase spokesperson. “Cardholders can transfer points to 11 points transfer partners (such as Southwest Rapid Rewards, The Ritz-Carlton Rewards, United MileagePlus and the newly added Flying Blue, the frequent flyer program for Air France and KLM, which allows customers to redeem for flights on Delta, Air France and KLM).

“In addition to the point transfer benefit, points earned on eligible cards are worth more when redeemed for flights, hotels, car rentals and cruises on Chase Ultimate Rewards. As few as 50,000 points can be transferred to Flying Blue and redeemed for a round-trip Economy Class flight from the US to many European destinations (subject to terms and conditions of Flying Blue and Ultimate Rewards).”

In August 2016, Chase added the Chase Sapphire Reserve credit card to its Sapphire premier card portfolio. The new Visa Infinite card is targeted at the luxury credit card market and offers a 100,000 points sign-on bonus to customers who spend $4,000 in the first three months, and 3X points on a wide range of travel and dining purchases, flexible redemption options and valuable travel credits. The card’s rewards outweigh its annual fees of $450 for the principal cardholder and $75 for each authorised user.

In March 2016, Chase launched Chase Freedom Unlimited, a card that lets customers earn unlimited 1.5% cash back on everything they buy – with the ability to redeem any amount of  cash back any time. Cardholders earn a $150 bonus after spending $500 on purchases
in their first three months from account opening, and a $25 bonus when they add their first authorised user and make their first purchase within this same three-month period.

“Sapphire Reserve has had excellent customer response, especially from millennials,” Kevin Watters, Chief Executive Officer, Chase Card Services, told the November 2016 BancAnalysts Association of Boston Conference. “The card has a strong customer profile, with credit scores and income above the portfolio average. Also, new Freedom Unlimited accounts opened exceeded one million within five months post-launch.”

Watters told the conference that, in the third quarter of 2016, new credit card account originations were up 35% year-on-year, with over 75% being opened through digital channels. “Chase is consistently ranked  number 1 credit card issuer in the US based on loans outstanding (excluding private-label and commercial cards), and in Q3 16, we were also ranked number 1 by sales,” he said.


“Over the last few years, Citi has invested heavily in its ThankYou Rewards programme to better meet customer needs and wants and offer innovative new ways to redeem points,” Mary Hines, Global Head of Citi Rewards, says. “Most recently, Citi announced US airline JetBlue as a new ThankYou Points Transfer partner, providing a new way for Citi Premier, Prestige and Preferred cardholders to redeem for TrueBlue points. Now eligible US cardholders can transfer an unlimited number of their ThankYou Points to JetBlue TrueBlue points at a rate of 1.25-to-1 for Citi Premier and Prestige cardholders and 2-to-1 for Citi Preferred cardholders. Also, Citi cardholders can also transfer their ThankYou Points to over a dozen other hotel and airline loyalty rewards programmes.”

During 2016, Citi announced new partnerships with Expedia and in order to offer cardholders expanded redemption options.

“Citi’s ThankYou Rewards programme has approximately 15 million members in the US,” Hines says. “ThankYou Rewards has expanded globally, launching in Australia, Hong Kong, Philippines, Singapore and Thailand in 2015. The programme is now available in 10 markets with locally relevant offerings, and has over 23 million members.”

Hines says that the average spend of US ThankYou Rewards programme redeemers is 3.5 times higher on an annual basis than non-redeemers.

“In the past 18 months, the Citi Prestige credit card portfolio has grown six-fold, and we continue to see strong engagement and interest in this competitive product,” a Citi spokesperson says.

“We are confident that we have a very strong offering in Prestige. The fourth night free on hotel stays continues to be a unique differentiator in this landscape, in addition to our distinct benefit offerings, including Price Rewind and Private Pass. These benefits, coupled with a rich rewards programme, a network of 850 airport lounges, and preferred pricing for our CitiGold and Private Bank customers, offer great value to our customers.”

In June 2016, Citi bought warehouse chain Costco’s co-branded US credit card portfolio for an undisclosed amount from Amex, along with over $10.5bn in receivables. Under the agreement, Costco’s co-branded Amex cardholders were transferred to Citi-Costco Visa-branded credit cards, which offer cardholders cash back and other benefits on all purchases.

Wells Fargo

In March 2016, Wells Fargo launched Go FarTM Rewards, its enhanced credit card rewards programme available to all customers with a rewards-based Wells Fargo credit card.

The programme allows cardholders to redeem their rewards at any Wells Fargo ATM, use rewards toward their qualifying Wells Fargo chequeing or savings account or apply their rewards toward the principal balance of a qualifying Wells Fargo line or loan.

Cardholders can also take advantage of options in Go Far Rewards to pool rewards with other customers, gift rewards to other customers or to charity, create wish lists and more – while on-the-go. These features are in addition to standard rewards offered by the programme such as travel, merchandise and gift cards.