Reward Card Evolution

Reward credit cards are continuing to evolve as both in response to the CARD Act and as part of the natural cycle of product development.    I have been predicting for some time now that reward card offers will continue to move away from points and towards perks.    Yes, points and miles are still a large part of the lure of reward credit cards, but we are increasingly seeing creative perks being offered as well.   I am not talking about the generic perks offered by the credit card networks such as purchase protection and rental car insurance.   I am talking about specific benefits being offered by the non-bank affiliate, such as an airline or hotel chain.

Airline Card Perks

The Delta SkyMiles American Express card has been one of the early providers of cardmember perks.  For example, holders of the Delta SkyMiles Reserve Card have always received upgrade priority over non-Delta Reserve Cardmembers within Medallion level and fare class.    That means that if you and another Gold Medallion level member are on an upgrade list for a first class seat, the one with the Reserve Card will get the seat.    For frequent travelers, that can be a big deal.

Recently, Delta sweetened the deal by offering the first checked bag fees waived for cardholders and up to eight other passengers traveling on the same itinerary.    Imagine a family of five going on a week’s vacation avoiding $25 per bag fee’s each way, and you can see how the card could pay for itself very quickly, even for infrequent leisure travelers.

Continental Airlines has also been innovative in the perks they have offered in conjunction with their OnePass credit card offered by Chase.    They have been waiving checked bag charges for some time before Delta started doing so.    Now they have started offering free upgrades on award tickets to elite members of their Onepass program who are also holders of their affiliated credit card.     This seems targeted at business travelers who make elite levels but travel frequently for personal travel on award tickets.    These travelers can now save huge amounts of miles by booking economy awards and being upgraded.

Why Are They Going From Points To Perks?

Credit card companies are being squeezed to some extent by the CARD Act.   With fewer tricks and traps, there is less ancillary revenue being generated from late fees, double cycle billing, and other traditional income sources.   In this weak economy more and more credit card holders are at risk of defaulting on their debts.   At the same time the market for the high income, low risk customers remains as competitive as ever.    If you were to be a fly on the wall at a meeting of a bank and an airline’s marketing departments, I am sure that the discussion would revolve around new ways to attract customers to their credit cards without offering ever increasing quantities of miles and points.

These miles and points are purchased by the banks from the airlines and hotel chains to give to their card members.    While the banks pay a fraction of the price that points are sold for to the general public they still end up paying millions to the airlines and hotel chains.   To the seller of the points and miles these outstanding balances represent a future liability.     By offering perks such as free upgrades and free bags, they are offering their customers value while minimizing bank expenditures and airline and hotel liabilities.

The credit card industry continues to adapt to the demands of the marketplace, and savvy credit card holders are advised to keep abreast of the latest developments in order to ensure that they are receiving the maximum value from their credit card portfolio.