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Risk vs. reward, take two…

Just last week J.P. Morgan Chase made headlines, announcing that savvy, super travel rewards customers cost the company an unanticipated $330 million in potential profits, as consumers maxed out bonus categories for spending, and redeemed points wisely. This week, it’s Amex making waves. During a quarterly earnings call, American Express announced their quarterly spending on customer rewards, and the number begins with a B…

a pool with chairs and a city skyline2.4 Billion In Quarterly Rewards

American Express spent $2.4 billion in customer rewards in the second quarter of 2018. This staggering figure takes into account the highly lucrative Membership Rewards program, as well as deals with chains such as Hilton, Starwood and leading retailers such as Amazon. Increased competition from the likes of J.P. Morgan Chase, Wells Fargo, Citi and Bank Of America have forced Amex to bolster rewards and card benefits, but such perks come at a steep cost for the card issuer. Despite $7.11 billion in quarterly expenses, American Express still came out ahead, with a net income of $1.82 billion.

Invalid request error occurred.Battle Of The Bonuses

Customer acquisition is one of the most costly expenses in the credit card rewards game, and one which card issuers are attempting to curb. Handing out 100,000 point welcome bonuses to lure in customers is a significant investment, which can easily cost a card company like American Express more than $500 in points alone. But banks now look not only to get their card into your wallet, but be the one you pull out. Bonus categories are all the new rage as savvier customers attempt to maximize their return and build points towards “free” travel

Credit cards, such as Amex Platinum, have been forced to up their bonus categories, with offers such as 5x points on airfare, or 3x points on dining, from the Chase Sapphire Reserve to become the go to card for daily spending, especially amongst the highest spending subsets. Capital One offers a staggering 10x points on hotels booked through a Hotels.com partnership. These bonus categories bring in higher spending from cardholders looking to maximize rewards, which brings the credit card company higher fees collected from merchants, but the spending bonuses also eat into the profit margin. It’s a delicate dance, to say the least.

a black wallet with a blue and black designThe Great Balancing Act

The floodgates are open on the great credit cards rewards market in the U.S., as more and more consumers decide that the whole “points thing” just may be worth a shot. With wider acceptance and faster payment processing, credit card companies are banking on increased revenue to offset their increasing costs to keep customers happy, and spending. Expect to see bonuses, perks and fee credits continue to rise, as customers put more and more of their daily spending onto credit, rather than debit cards. As American Express and other credit card companies look to cut down on customer acquisition costs, expect to see a tightening of repeat sign up bonuses, known as churning, while perks continue to expand. A long term customer is the most profitable customer in the credit card rewards game.

What do you make of American Express spending $2.4 billion in rewards?

Gilbert Ott

Gilbert Ott is an ever curious traveler and one of the world's leading travel experts. His adventures take him all over the globe, often spanning over 200,000 miles a year and his travel exploits are regularly...

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  1. Amex knows how to do business,
    Not only taking customer’s money 💰
    Give back to customer… give and take..
    That’s why still top of the line for credit card 💳
    2.4 billion spent and how much they making is amazing 😉 buy one get one free.. is trending now..
    That’s why I love Amex Card..

  2. “announcing that savvy, super travel rewards customers cost the company an unanticipated $330 million in potential profits”

    I would like to call that an absolute lie and Chase said that their credit card rewards lead to other products that are more profitable. In no way did Chase say their customers cost them anything.

    1. They specifically said their earnings were $330 million lower than expected, because of unexpected rewards costs, via credit card super users.

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