CardsFTW #33: Annual Fee Pain
Plus, UCLA Cards, Amazon Receipts, and Card Supply Chain Problems
American Express is increasing the annual fee on its Platinum Card to $695.
You’ll find a slew of credit card bloggers who are compensated by application approvals (but assure you of editorial independence) telling you this is OK. No, in fact, it is a good thing, and they are probably keeping their card.
It’s not hard to justify an annual fee. All cards like this come with benefits built-in to the card that can have real value: a credit for Uber every month, a credit for Equinox, access to an airport lounge, etc. When I was running Wallaby, we used to keep spreadsheets on all of this, and it was easy to see that a card like the Platinum Card delivered more value than the fee when used to the maximum extent possible.
For $695, you now receive:
$200 annual hotel credit (only at select prepaid hotel bookings)
$200 annual airline fee credit (only on incidental fees at one selected airline)
$300 at Equinox ($25 per month)
$200 in Uber Cash ($15 per month, plus more in December!)
$240 in “digital entertainment” ($20 credit for Peacock, SiriusXM, New York Times, Audible, or Peacock (?))
$100 for Global Entry or $85 for TSA PreCheck fees (of course, you only do this once every five years)
$100 at Saks ($50 per half-year)
$179 CLEAR membership (if your airport has this)
Plus, things like status, insurance, etc.
Add these things up, and you have $1,400+ in value for $695. What a deal!
But is it? Can you keep track of this? Does your other credit card have overlapping benefits? Will you use these things? Do you live near an Equinox? Do you ever take Ubers?
American Express is selling a lifestyle, but I’m not buying it (anymore). I think the company will see good retention. People want to believe they will use these benefits. If you do, it is genuinely a good deal. Yet, there has to be a breaking point where people will stop paying $500+ for a credit card (see also Chase Sapphire Reserve, Citi® / AAdvantage® Executive World Elite Mastercard® Credit Card (winner of the longest card name ever) and other elite cards).
I’ve been a fan of optimizing cards for almost 20 years, and I’m exhausted.
Consumers are now more aware of how payments work, and the fees merchants pay for interchange, more likely to have to pay a credit card surcharge, and more concerned about the implicit wealth transfer rewards cards create. Will they move away from these products, or do we love our rewards too much?
While these benefits appear to be focused on appealing to affluent 40-60-year-olds (starting to capture the oldest millennials as they enter their peak earning years), I think the 40 and under crowd has less money at their age than previous generations (due to stagnant wages, higher levels of debt, and multiple substantial economic shocks) leading to an aversion to annual fees.
I, speaking as one elder millennial, downgraded my Platinum card last year to save on the fees and am looking forward to spending my remaining points.
New University Co-brands
Alumni of university co-brands are one of the oldest types of co-brand cards. Bank of America, which acquired MBNA’s substantial business here, continues to offer dozens of university co-brand cards. The University of California at Los Angeles, with more than 45,000 students and a world-class academic reputation, announced new cards with Pasadena, CA-based Wescom Credit Union.
Most co-brand credit cards are issued by larger national credit card issuers rather than local credit unions. Wescom, however, is a large credit union with more than $4 billion in assets and 200,000 customers. The new card arrangement builds on existing sponsorship deals between Wescom and UCLA.
The new Bruin Edge and Bruin Choice Credit Cards offer unique UCLA-focused rewards withe earnings bonuses at UCLA and Rose Bowl Stadium merchants. Cardholders earn 1.5 points per dollar everywhere and 5 points per dollar at “UCLA purchases.” Rewards points can be redeemed for cash back, gift cards, travel options, merchandise, entertainment, or to be donated to select UCLA nonprofit organizations. As expected with credit unions, the APRs on the cards are lower than industry standards.
“UCLA purchases” is a limited category, but these are solid cards for locals or current students or employees. The Edge card includes a $500-value signup bonus with no annual fee.
COVID Supply Chain Issues Hit Cards
Reporting last week highlighted that credit cards, including EMV and RFID chips to enable modern payments, are suffering from supply chain issues like everything in the world lately, especially items with computer ships. The Smart Payment Association estimates the problem will grow in late 2021 through 2022 with potential card shortages. Let’s hope no significant breaches requiring massive card re-issuance occur in the next year!
More Attacks on Interchange
This week, a few new items demonstrate the recurring theme of merchants hoping to reduce payment card interchange costs. Emirates launched a direct account-to-account payment system with Deutsche Bank. The new system, dubbed IATA Pay (International Air Transport Association) generally and Emirates Pay, in this case, allows travelers to pay directly from their account (only in specific geographies). In exchange for not using their credit card, travelers are eligible for other perks, such as an increased baggage allowance.
Meanwhile, merchants and banks continued to disagree through public comments to proposed new debit card routing rules with the United States Federal Reserve Bank. At issue is that while regulations have required multiple routing options for US debit card payment for in-store purchases, online transactions typically have only a single routing option. Merchants argue this increases their costs. Regardless of framing, this is a pricing dispute between two private groups, but the Fed will have to weigh in soon. The comment period continues for a few weeks.
Finally, this week, American Express, along with payments company Verifi, launched a new capability for American Express cardmembers to see receipt and item-level data on their card account for Amazon purchases. Individual item-level data (known as SKU-level or Level 3 data) is the holy grail of payments. In most cases, the card issuers know where you’ve shopped (the merchant) and what you’ve spent (the amount), but not what you purchased (the items or services). In some cases, like travel or certain corporate purchases, this data comes along as well.
Merchants have loathed providing this data, as it creates additional insight into their businesses. Major retailers like Walmart have not participated in information sharing programs in the past to protect their proprietary data.
The Amazon receipt data builds on the initial rollout of the digital receipts product from American Express earlier this year. I don’t know why Verifi has rights to share this data, but it certainly is handy for users. Consumers who carry the Synchrony Bank-issued Amazon.com Store Card already have this capability to see item-level data on the card, but it is new to see it outside a co-brand product.
Thanks for reading CardsFTW, a weekly-ish newsletter about all things debit and credit. CardsFTW is written and curated by Matthew Goldman, Founder, and CEO at Vertical Finance, a challenger credit card startup. If you’re looking for insights into everyday payments beyond deal blogs, please subscribe for free at cardsftw.substack.com. If you enjoyed this, please share it with a friend! Follow me on Twitter @magoldman.