In Co-Branded and Affinity Credit Card Market, Upping the Rewards Ante is a Must

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Nov 20, 2017, 09:03 ET

ROCKVILLE, Md., Nov. 20, 2017 /PRNewswire/ -- Two key co-branded rewards strategies that helped shape the current financial services landscape—5% cash back and accelerated rewards—are now an expected mainstream offering. As a result, more and more new card entrants are setting the bar higher and the trend isn't about to stop anytime soon, according to market research firm Packaged Facts in the brand new report Co-Branded and Affinity Cards in the U.S., 6th Edition.

Higher Rewards Rates

Part of a two-pronged private-label and co-branded strategy, the Target REDCard Visa 5% cash back offering was once an industry unicorn. Fast forwarding to 2017, it is now part of a growing group that includes Sam's Club (5% back on gas) and Amazon (5% back on Amazon purchases). To boot, the Sam's Club MasterCard and Amazon Prime Rewards Visa layer in accelerated rewards that start at 5% and move downward. While the Costco AnyWhere Visa foregoes 5%, it offers a strong accelerated blend: 4% on gas, 3% on dining and travel, and 2% at Costco. The Uber Visa adds a few wrinkles by offering an industry-leading 4% back on dining, as well as 3% on hotel and airfare and 2% on all online purchases (an industry first).

"So much for 3-2-1 cards setting the rewards bar. This puts added pressure on major competitors to ratchet up their rewards rate or offer a unique, differentiating soft benefit—or risk customer loss," says David Sprinkle, research director for Packaged Facts.

Cash Back Gets Serious

A similar phenomenon is playing out in the own-branded rewards card space. Discover's flagship Discover it card employs a strategy that once led the industry, offering 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter and unlimited 1% cash back on all other purchases. That strategy has since been matched by Chase Freedom. Other cards also offer a more streamlined (and arguably a stronger) cash back proposition on all purchases. These cards also require revolvers to succeed, something Double Cash has helped deliver for Citi.

To sweeten the pot, Discover began offering "Cashback Match," which couples double rewards for new cardholders with promotional financing through the first year of card use, effectively giving 10% cash back on rotating category purchases and 2% back on everything else. Time will tell if the strategy results in loans balances sticking around long enough for Discover to reap its own interest income rewards, or whether cardholders with balances will move on via balance transfer offers to have room to pay them down a bit longer without interest fees.

What is Cash Back Without Loyalty?

Putting survey results and hard data aside, common sense suggests that hard benefit-driven, cash back cardholders may be among the first to jump ship and go where the newer, better deal takes them. USAA must see this writing on the wall. Its Limitless Cashback Rewards Visa Signature Card offers the best cash back rate in the industry, a flat 2.5% back on all purchases, with a caveat: cardholders must maintain a monthly qualifying direct deposit of $1,000 in a USAA Bank checking account.

Soft Benefits Must Shine Through

Echoing Sprinkle's previous comments, Packaged Facts in the report noted opportunities to standout in the increasingly competitive fray. Notably, the co-branded rewards value proposition cannot focus on hard benefits alone and not risk cardholder defection to the next, bigger, better rewards product. They must differentiate themselves via soft benefits and other differentiating features that ideally blend seamlessly into the card program partner's brand strengths, advises Packaged Facts.

For example, the Williams-Sonoma Visa allows cardholders to redeem Culinary Adventures. To fight the hard benefits onslaught, American Express is focusing aggressively on soft benefits that mesh well with its reputation for strong customer service, while offering flexibility in the way cardholders can redeem their rewards.

The strategy is especially important for programs catering to the highly affluent. Make no mistake, almost everyone likes a deal, but a strong selling point involves offering highly affluent consumers something they cannot otherwise easily obtain, something that underscores high, differentiated quality, or something that provides them with something highly memorable.

"This provides a clear path forward for not only co-brand card issuers and payments players but also the brands they serve, especially when everyone, from Warren Buffet on down, can easily Google a better price, and almost everyone tries," says Sprinkle.

About the Report

Co-Branded and Affinity Cards in the U.S., 6th Edition, provides deep insight into a market contributing some $860 billion in purchase value to U.S. payments. The report emphasizes co-branded credit card program features and benefits analysis, partner and issuer co-brand card strategies and competitive trends, co-brand growth trends among issuers and networks, and related trend and opportunity spotting.

View additional information about Co-Branded and Affinity Cards in the U.S., 6th Edition, including purchase options, the abstract, table of contents, and related reports at Packaged Facts' website: https://www.packagedfacts.com/financial-services-market-c83/.

About Packaged Facts

Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer demographics and shopper insights, consumer financial products and services, consumer goods and retailing, consumer packaged goods, and pet products and services. Packaged Facts also offers a full range of custom research services.

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