Credit Card Rewards: Losing Luster or A Permanent Fixture

12. March 2018.

On a personal trip to London two years ago, with the airfare funded by American Express points and a hotel funded by a national credit card issuer, we left for the two-week trip will less than 100 GBP in hand reserved for tipping along the way. Any expenses along the way would fall onto our credit cards, in hopes that we will feed our rewards pool for the next big trip.

Rewards are great from a user perspective but with my analyst hat on, rewards are a costly drag on revenue. They accomplish the goal of stimulating card usage, but at a time when the Credit Card Return on Asset is floundering, which will drop from x to y, we do not see a long-term future.

This article discusses the potential shift.

Interesting read; Mercator called the shot on this trend back in July 2017 with our research on the long-term potential of rewards in Premium Travel Reward Credit Cards: High Profile but Unsustainable. We think the author of this article might be a little optimistic.

  • The rewards party isn’t ending anytime soon; it’s just that some specifics may change. For now, get to know your credit card and the benefits it already offers. You’ll avoid missing out on potentially valuable perks, and you’ll also be able to gauge whether new offers are better fits for you.

Thanks to U.S. credit card interchange rates, among the highest in the world, rewards will have a shelf-life with diminishing benefits. However, should price controls impact the interchange model, as it did in Australia, Canada, and Europe, expect to see rewards as a loss leader in the US market.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Read the quoted story here

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