Annual fees are on the rise in the premium credit card market, which makes Citi’s move to redirect people looking to acquire the Citi Prestige card, to a no annual fee card all the more surprising.
After years of floundering, Citi has officially shut down new card applications for the Prestige Card, effectively bowing out of the intense luxury credit card market.
Significant changes from American Express and a pending revamp from Chase, along with rumbles of a premium credit card from Capital One are sending reverberations around the travel rewards card market, and Citi’s move is the first sign that rewards are too rich for some issuers.
Citi Ends Prestige Card
Doctor of Credit reported on Citi making it all but impossible to apply for the Prestige card earlier in the month, but Citi confirmed to Bloomberg this week that temporary measures are now permanent.
There won’t be any new Citi Prestige cardholders, and Citi customers are no longer welcomed to product change over to the card.
The tale of the Citi Prestige is one of interest and intrigue, as the US bank looks to navigate a shifting rewards market, where many of the people holding the cards with the highest annual fees are not the highest spenders, but the shrewdest customers.
Citi Prestige: From No Brainer To Obscurity
When Citi launched the Prestige Card, it was one of the hottest tickets in recent launches. Offering 4th night free benefits on hotel bookings, which could stack with other offers, savvy travelers jumped on the card for that benefit alone.
Throw in the $250 travel credit, which covered just about any travel purchase, airport lounge access and the card basically sold itself. For a while, it seemed to have a more flexible approach to rewards than Amex Platinum, or Chase Sapphire Reserve.
What Citi likely didn’t expect, was that the Prestige did not become the “go to” of high rollers as perhaps expected, but the “must have” of savvy travelers who spend far less, and aim to maximize the return of every dollar.
These are the travelers who put stickers on their various cards to highlight the earning rates on groceries, travel, gas and other common spend categories, to be sure they use the right card for maximum benefit, every time. The same customers often avoid a key money spinner for banks: debt.
Points focused travelers are typically more cognizant of best practices with credit than the average consumer, because the entire goal is to earn points and rewards for travel without paying for them. Sure, there are annual fees, but any benefit of earning points is negated by revolving debt incurred.
Basically, Citi ended up earning less on debt from the high end rewards card than it expected, and with ripe benefits, which were subsequently devalued numerous times, the supposedly high annual fee wasn’t often enough to make the economics work.
To make matters worse, without high volume spenders, the “swipe fees” which can be very lucrative for card issuers like Amex, never quite materialized for Citi. After many devaluations of key benefits, such as limiting the amount of “4th night free” each year, the card lost its flagship appeal.
Current cardholders will have their accounts remain in tact, with current benefits, but no new applications can be received. The only way for someone to get the card now, is as an authorized user of someone currently holding the card.
Citi has thrown in the towel and is apparently steering potential interest in the Prestige toward the ‘Custom Cash’ card, which carries no annual fee. Is Citi admitting defeat to Amex and Chase in the premium market?
Amex and Chase Push Higher
Amex just raised the annual fee on the Platinum Card, yet again. From the days of $400’s came $550, and now the card has set a new fee record for a widely accessible rewards card, with a $695 annual fee. For its part, Chase raised the Sapphire Reserve annual fee from $450 to $550 in the last couple years.
With the $145 annual fee increase from Amex comes up to 10x more in potential card benefits ($1400), most of which aren’t as “gameable” as those from Citi. Basically, they are going to be winners for people who spend money, but perhaps not for people who don’t.
Rather than getting dinged over and over with ‘4th night free’, Amex leveraged its high net worth consumer base to get brands to offer extensive discounts which can account for up to $1400 in new benefits, on everything from gym memberships and streaming credits to private jet access.
Amex also opened its own network of ‘Centurion’ lounges, which keeps super user fees lower than those through third party programs. Every time a cardholder swipes into a lounge operated by another company, the card company is billed, so keeping the costs of this sort of access down is a significant hedge.
Chase is expected to unveil the most significant changes to its flagship Chase Sapphire Reserve offering in August, with new perks to test rival Amex and higher incentives for spending with the card, via more bonus points.
The smartest banks in the premium credit card market are no longer hoping for wealthy customers to carry debt with large balances, and instead are squarely focused on making their card the one high spend customers pull out, every time. Chase plans to offer up to 10X points on select travel purchases via Chase Travel, which could steal a significant amount of spend from other cards, where 5X tends to be the cap.
Why The Game Is Harder For Banks Than People Think
Years back, a credit card from Barclays aimed to disrupt the US rewards card market, and every bank in America was rooting for it to be a success. Why? Because it offered no upfront rewards, and instead the entire value proposition came after significant spending.
If it succeeded, other banks could also save thousands on acquisition costs. It didn’t.
Banks spend thousands on rewards to lure in customers with 100,000 point welcome bonuses, and unless someone is spending more than $100,000 a year, it’s unlikely the bank recoups its cost to acquire a customer for a couple of years.
If someone just pulls the card out for the rewards and maximizes them annually, but rarely uses the card for significant spending without incurring any debt, the bank may never turn a profit. Long term customers with above average spending habits are the key, but as the internet makes consumers savvier by the day, the rewards must remain duly enticing.
Too enticing, and you might attract low spend travel savants. Too weak, and you might just have a premium card with no signups. If you’re Citi, that might mean folding up the premium portfolio and focusing on the every day.