THE CREDIT CARD REWARDS EXPLAINER: Examining issuers’ battle to attract and retain customers with perks and loyalty programs

BIIThis is a preview of a research report from Business Insider Intelligence, Business Insider’s premium research service. To learn more about Business Insider Intelligence, click here.

Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically. 

For consumers, the emphasis card issuers place on these cards has resulted in rewards becoming much more worthwhile and widespread, ranging from big sign-on bonuses to free travel. And with offers continuing to get better, consumers will continue seeking out the best rewards cards.

The value added from these cards is undeniable for issuers — in addition to increasing adoption of credit card products, the opportunity to earn rewards encourages cardholders to spend more money. This not only helps to drive up revenue, but also provides issuers an opportunity to mitigate any losses they may be feeling from the Durbin Amendment, which reduced how much fees issuers could charge on debt card transactions starting in 2011. 

But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.

In a new in-depth report from Business Insider Intelligence, we walk through the new credit card rewards landscape, which now includes rising consumer demand for rewards, increased opportunity for issuers to drive up usage of their credit card products, and increasing costs. After discussing the evolution that has led to this current landscape, we analyze how issuers will have to adjust in order to continue reaping the benefits of offering rewards without sacrificing significant profits.

Here are some key takeaways from the report: 

• Consumers put tremendous value on credit card rewards, which makes these them a major user acquisition channel for card issuers — almost 60% of consumers rank rewards as a major reason for adopting a credit card
• By offering high-valued and attractive rewards, card issuers are able to drive up card adoption and usage — JPMorgan Chase reported a 35% increase in new card accounts in Q3 2016, after launching the Sapphire Reserve card.
• Offering high-valued credit card rewards does come at a high cost to card issuers — the costs associated with offering credit card rewards have more than doubled since 2010 for the six largest card issuers in the US
• However, major players in the space are already beginning to find ways to cut costs, including rolling back rewards on their most premium products and partnering with well-known brands to develop less expensive, more creative rewards offerings.  

In full, the report: 

• Identifies the costs associated with offering rewards for issuers and how they have increased over time.
• Details why credit card issuers continue offering high-valued rewards.
• Analyzes how the industry has evolved since 2011
• Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs.