The era of astronomical credit card rewards is waning

Benefits versus fees.
Benefits versus fees.
Image: Reuters/Kai Pfaffenbach
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At first glance, the credit card points game seems like an equitable exchange. By repeatedly using certain cards, consumers get rewarded in the form of points to book free flights, rewards like airport lounge access, and bonuses in the form of tens of thousands of points when they meet a minimum spend. Banks and card providers get more big-spending consumers, who end up paying more annual fees, interest charges, and transaction fees.

There’s a problem though: the customers on one side of that transaction have gotten too good at taking advantage of weak points in the contract. Indeed, the once super-niche, now verging on mainstream, subculture of maximizing credit card points has become so adept at wringing out every last benefit and perk from credit card companies with little to no cost to themselves (other vast amounts of time and pedantry), that credit card companies are signaling that the jig just might be up. As the Wall Street Journal (paywall) reports:

JPMorgan, Citigroup and other large banks, including American Express Co., are discussing how to cut back or rejigger some of their cards’ rewards, according to people familiar with the matter. The banks don’t plan to end rewards, but want to shift them in ways that encourage more card usage and scale back upfront bonuses, the people said.

The main problem has been a miscalculation on banks’ part that credit card users would remain just that: People who casually use credit cards for big purchases. Instead, many card users of this points-obsessed ilk apply for cards just for the sign-up bonus. Once they meet the minimum spend that earns that bonus, they stop using the card, then pool their points across various cards to redeem free flights, hotel stays, and more. And once the annual fee kicks in (the first year of marquee cards like American Express Platinum Card and Chase Sapphire Reserve is often free) many cancel the card altogether or transfer to another fee-free card, leaving banks high and dry right at the point they would start making money.

Another problem for banks is this persnickety customer’s financial prudence. Read any points blog or news site, and you’ll find the golden rule is generally the same: Only use cards to buy things you’d purchase anyway, and pay off your balance in full each month. (After all, perks are rendered pointless if you’re paying for them in interest and fees). In other words, the gamble that generous rewards would make card holders spend more profligately didn’t pan out—it just made this subset of card users diversify by signing up for a higher quantity of generous cards.

According to the Journal, the card issuers’ average costs for maintaining these rewards grew 15% in the third quarter of 2018, compared to the year before. So it’s no surprise that banks are looking to cool things off in the form of more modest sign-up bonuses and perks that reward users for ongoing use, rather than up-front spending. Get your 50,000 point bonuses while you still can.