A perfect credit card looks different to everyone. For me, there are unlimited airport lounge access, 5% travel rewards per purchase, $300 annual travel credits, and additional perks and benefits to sweeten your deals. Ah, there is no annual fee. Credit card experts will say my perfect card is a delusion. But girls can dream, right?
So, what’s getting in the way of my (or yours!) perfect credit card becoming a reality? In early May, I attended CardCon, a meeting for credit card experts and market experts, and learned from some credit industry insiders why it doesn’t exist (and probably won’t) and what I could do instead.
Credit card reward programs are often loss leaders
Just like the $5 Costco Rotisserie Chicken, which has not changed the price 25 yearsReward Credit Cards can become a loss leader for many card issuers. So, attractive rewards can even bring people to the door and cause loyalty, but for many card issuers it’s not a money supervision.
During the CardCon panel on building beneficial rewards programs, RoanPro Executive Vice President of Solutions Suzan Chaffin and Arro CEO Ryan Duitch shed light on the real loss of money to those who don’t balance their reward cards.
Credit card companies earn money from fees that charge the cardholder, such as annual fees, balance transfer fees, interest fees, and transaction or exchange fees.
Replacement (or swipe fee) The fees required to accept, approve and process payments when you make a purchase. These are the major revenue streams for card issuers with swipe fees for all credit cards totaling $148.5 billion in 2024.
However, the reward card can be consumed with the exchange fee revenue. This is because credit cards often work with third parties and partners to manage their compensation programs. In exchange for building these rewards, the partner receives the card issuer’s interchange proceeds as payment.
“Many reward programs are actually a loss leader for many businesses. Anyone who doesn’t know you, you give every interchange,” explains Ducci.
As an issuer, if you give up on the revenue from your exchange fee, you will need to rely more heavily on other measures such as interest fees to generate revenue. According to Duitch, the problem is that prolific reward card users often don’t maintain balance.
Many people don’t spin. They reward it. You give all your income at the interchange and many (card companies) lose a lot of money.
– Ryan Ducci
Aro CEO
Given the lack of costs and potential revenue when it comes to reward cards, issuers need to walk down a detailed line when it comes to designing reward credit card products.
Credit card companies are cautious
If your ideal credit card has not been created yet, you may be waiting for a while. David Gold of Gold Peak Advisors previously tracked the roles of senior executives at American Express and Chase for over 20 years, but he reached out to develop some of the top credit card reward programs.
During his tenure, he learned that the risk-averse corporate banking environment is not necessarily the most fostering innovation.
Gold explains that there are similarly compliant regulatory concerns and is not necessarily a disruptor in the industry.
Rather than recreating the wheel, card issuers may lean towards a tried and proven reward structure instead of taking on the financial risk of creating something new and looking at the flop. That doesn’t mean that no innovation occurs in the credit card space, according to Gold.
A delicate balance
It’s no surprise that credit card companies are among them to make money. They attract attractive perks, rewards and benefits with attractive perks. However, there are complex balancing acts behind the scenes. Prices, value, brand affiliation, fees, interest rates and partnerships all blend into this “economics pool” between the card issuer and the cardholder.
“From a neutral perspective, the perfect card will find the right balance of all these pieces for both the issuer and the consumer,” explains Gold.
If the scale is leaning heavily in the favor of the consumer or issuer, adverse outcomes occur.
“If the issuer gives too much value to the customer, they cut the price (credit cards) and that’s not good for the customer,” Gold says. “If the customer doesn’t get enough value, they won’t use that card. They go and get the other cards.”
This is a pattern that we noticed with many popular credit cards, where the value of the reward suddenly drops, increasing annual fees or robbing credits for certain perks and statements. Suddenly, what could have been a great card loses its appeal.
Another factor is cardholders who misuse reward programs or use Gamify. “The extra value you can get will go away if people find it and abuse it. So that’s never last,” Gold says.
Find the perfect card for you
If dreams of perfect cards look like me, Gold’s next insight might be a shame.
“From a consumer perspective, make sure you want to transfer your card to everyone.
But that doesn’t mean you can’t find a card (or two) that will help you get closer to that ideal. Gold has shared some suggestions for finding the best card for your lifestyle.
- Understand what your priorities are. Choose the type of card reward that makes sense to you. Want to earn travel rewards and cashback? Do you need simplicity or is it more flexible?
- Decide whether an annual fee card is required. Some of the best travel cards on the market have annual fees, but they may not be worth it For everyone.
- We evaluate how much you can earn from a welcome offer. At least for the first year, the amount that can be entered in year-on-year may exceed the annual fees of the card. Run the numbers to see if it still makes sense to hold the card after the first year.
- Avoid excessively complicated cards. Your rewards are only valuable if you actually use them. If redemption or rewards for your partner is too complicated, it may not be the ideal card for you.
Conclusion
The definition of a full credit card will change based on which side you are. For credit card companies, a perfect credit card appears to be something that doesn’t give much value while having a healthy proportion of cardholders who balance the full balance with those who pay the full balance each month.
For consumers, it’s about the rewards, benefits and values that we can get out of the card. Ultimately, the perfect card will depend on what is important to you.
