Opinion: Are Premium Rewards Cards Trying to Do Too Much?

Attention fans of premium rewards card: You may want to check out that annual fee because odds are you’re being charged more than ever before. And while such cards are offering more theoretical value, knowing how to unlock all those rewards has also become something of a calculus equation.

It’s a dangerous game that the banks and credit card companies are playing, to squeeze a little more out of high-value customers. If they go too far, it could kill their golden goose.

Take a couple of the more prominent examples on the market: JPMorgan Chase’s beloved Sapphire Reserve, whose price tag just recently leaped to $795 a year, up from $550. And how about the American Express Platinum? That one now comes with an $895 annual fee, up from $695.

For an inflation-weary American consumer, who has seen costs of almost everything go up across the board over the last few years, it’s not that surprising to see these fees spike as well. But their willingness to swallow these major increases for something that is not a household necessity remains to be seen. 

From the perspective of financial institutions, it’s certainly understandable why they would do so — because they can. This is a relatively wealthy cohort of cardholders who were already willing to pay large fees for the luxury and perks attached to these cards.

A couple hundred dollars more may not move the needle for them, as it would for other demographics.

But there are limits here: You don’t want to squeeze your loyal customers to such an extent that they start looking for other options, and end up resenting the card and the brand. It creates a wide-open lane for competitors to jump in and poach wealthier users by designing a rewards system that is simpler to understand and access.

This is especially true in an economy that is starting to show serious cracks. Over 1 million layoffs have been announced this year — and that’s with more than a month left to go to the year.

Meanwhile, October’s economic data isn’t even being released, thanks in part to the government shutdown, and talk of an AI bubble is rattling investors. That could push more cautious individuals and corporations into emergency belt-tightening mode — which is not ideal for an industry that revolves around spending.

And if consumers start looking for low-hanging fruit where they can cut back, an $895-a-year card might certainly fit the bill.

Part of the issue here is the nature of the ‘value’ being offered. A coupon-book culture has developed, where consumers may get credits to book a particular hotel room through a particular platform, at a particular time of year, for a minimum stay.

All well and good — but how many users are actually going to realize all that ‘value’ (which requires lots of spending, natch)? 

Consumers are tightening spending, which could impact the value of rewards credit cards. Less spending often means fewer earnings.

The race to be first in theoretical value has made for a very cluttered rewards dashboard. You may get $10 off a month for your Peloton membership, or credit for an auto-renewing CLEAR membership, or a complimentary subscription to Apple Music. 

There is also typically airport lounge access — which sounds luxurious on paper, but in reality is often less so. And are you really traveling so often that an occasional airport lounge would justify such a punishing annual fee?

This coupon-book craze may be a natural extension of brand partnerships. But the end result feels a bit like a supermarket circular: It’s a blizzard of items that cardholders may not even want. By drowning users in assorted product placements, it can make it harder to focus on the things they really do value.

Some unsettling findings come via the Consumer Financial Protection Bureau. The federal agency found that while cardholders garnered $40 billion in rewards in 2022, the reality was that by the end of the year, $33 billion of those rewards were left unclaimed. If cardholders aren’t actually realizing benefits, then talk of total value can be something of a mirage.

Or look at gift cards, everyone’s go-to present when they can’t think of anything else and have to run to CVS at the last minute. Maybe that’s why 43% of Americans have unused gift cards (an average of $244 per person) stuffed in a drawer, according to financial information site Bankrate.

In other words, consumers are not great at claiming what they’re entitled to — either because they can’t be bothered, or they’re not interested in the item, or the process of redemption is too complicated. For companies that don’t actually have to pay out a reward, that’s an ideal transaction.

Moreover, cardholder rewards are sometimes devalued or denied due to fine print or program changes, as pointed out by the CFPB, which did a whole report on consumer frustrations. 

To navigate this complicated world of rewards requires a level of patience — and time — that most people just don’t possess, let alone high earners who aren’t going to set aside part of their day to figure out the specifics of some 10% coupon.

In one Wall Street Journal story on the subject, cardholders recounted how they had to turn to spreadsheets to help keep track of spending and rewards (a definite “buzzkill,” they admit). Others concluded that the whole process now feels like everyone’s least favorite activity: homework.

That’s a problem. If you are charging people almost four figures a year for something that has become essentially homework, that trajectory is not sustainable.

After all, it’s not like consumers — especially high-income ones — don’t have options. If they find the whole experience too pricey or burdensome to manage, it’s easy enough to find decent rewards cards with lower or no annual fees, even within the same card families.

And with economic storm clouds brewing, that kind of downshifting and simplifying may be exactly what happens.

After all, premium cards are supposed to make a user’s days easier and more luxurious. If you’re making their lives more complicated — and charging them more for it — don’t be surprised if they eventually go in a different direction.