rewards have become increasingly lucrative, as issuers battle for customers. From 100,000 point sign-on bonuses to 6% cash back offers, it has never been a better time to be a customer.
These rewards come at a steep price for banks. To find out just how much the top banks are spending on lucrative rewards, MagnifyMoney reviewed data in financial and FDIC filings of the six largest issuers representing 67.6% of the market.
The rapid growth in spending by issuers to provide rewards is dramatic:
The best rewards cards have lucrative sign-on bonuses and rich ongoing rewards structures. But is this sustainable? And can the companies make money?
MagnifyMoney conducted a national survey of people who opened cards in the last year. The results demonstrate that there is a method to the strategies being deployed by the largest issuers: it is a great way to create a loyal customer base.
The results might seem counterintuitive.
However, former executive and MagnifyMoney co-founder Nick Clements explains:
The purpose of a sign-on bonus is to encourage people to act. Most people do not wake up in the morning wanting to open a — and a sign-on bonus is a way for a company to encourage people to reconsider their options. It is no different from a sale in a traditional department store. But what really matters to consumers, as these results reveal, is the ongoing value proposition. People don’t particularly enjoy shopping for cards, and they tend to stay put once they do shift. The smartest issuers are luring consumers with a big incentive (the sign-on bonus), and they are keeping them with strong ongoing value propositions.
was probably the most successful product launch in history. And it worked because it hit every button. The massive sign-on bonus gave people a reason to apply for a . But the ongoing reward proposition was perfectly designed for its target audience. Those customers are going to stick around and become long-term customers.
As our survey found, there are people who like to go from offer to offer. However, this is a small group (only 3.7%, according to the survey). And companies are becoming much better at identifying and rejecting these consumers.
Cost of Rewards
Cost of rewards is publicly disclosed by American Express, Discover, and Capital One in quarterly financial filings. For the remaining issuers, MagnifyMoney estimated the cost of rewards. For the estimate:
MagnifyMoney hired Survata to perform a national online survey of 1,000 adults who opened a in the last year (the screening question).
*The information related to has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this prior to publication.