Opinion: The Ultra-Premium Arms Race Isn’t Sustainable

If everything is exclusive — is anything exclusive? That’s the question that emerges with the ongoing arms race taking place among high-end credit cards.

More bespoke experiences, more hard-to-get concert tickets and restaurant reservations, more access to luxury lounges in far-flung airports: Almost everything you can imagine is now on offer (for a hefty annual fee and a whole lot of rewards points, anyways).

Not a huge surprise, frankly. The exclusivity trend makes eminent sense for card issuers: It targets wealthier consumers, who represent low credit risks, and tend to spend a lot of money. Who wouldn’t want more customers like that?

But this constant ratcheting up of ultra-luxe benefits isn’t sustainable. The challenge is twofold: First, extremely affluent consumers are a relatively small slice of the societal pie. If you are concentrating all your efforts on the 1%, you are limiting your growth prospects to a fairly narrow niche.

Second, every other card company these days is doing the same thing. So your ski trip to St. Moritz is not as big of a differentiator as you may think it is. Instead, it’s become more like table stakes.

It is certainly true that by leaning into exclusive opportunities, cards are reflecting what the latest happiness research demonstrates: That people are increasingly valuing experiences over things. That is especially true of younger generations, including millennials and Gen Z, whose financial clout will only grow in coming years.

But at some point, if we haven’t already, we will crash into the law of diminishing returns. Card companies are investing significant resources into this vast array of high-end perks — in manpower, in the crafting of unique experiences, in marketing — but are they really moving the needle, in terms of attracting new customers?

Eventually, issuers will have to perform a more cold-eyed analysis of whether this gigantic, Cheesecake Factory-like menu actually makes sense. Especially if the economy turns south — in which case card downgrades will become more common, and the most lavish benefits will likely be trimmed.

Millennials and Gen Z, whose financial clout will only grow, increasingly value experiences over things.

There is also the broader question of just how many ‘exclusive’ rewards are sufficient before consumers become numb to it all. After all, the nature of the human brain is that we tend to get overwhelmed by too much choice. 

Consider the research of Professor Sheena Iyengar of Columbia Business School: In her book “The Art of Choosing,” she explains that when investors are presented with too many options in their retirement accounts, they get paralyzed and end up doing nothing at all.

In other words, good intentions can easily go awry. Iyengar’s research found that a simpler, curated menu was much more effective in getting people to take action. That’s a lesson card issuers would be wise to heed.

For instance, it would be interesting to discover how many of these exclusive perks cardholders are actually using. It’s very nice that the Mastercard Collection is offering snorkeling at sunrise in Mauritius — but is that really going to end up on the itinerary of many cardholders?

As such, maybe the presentation of limitless options is more aspirational than anything else. Unused rewards, like unused gift cards, are essentially free money. You’re offering the possibility of all these amazing experiences, even if cardholders don’t actually pull the trigger on any of them. 

More to the point, exclusive rewards are often used as a rationale to supercharge an immediate cash source: annual fees, which have become very steep and are surely bumping up against the ceiling of what the market will bear.

Mastercard offers cardholders access to exclusive perks, including opportunities to snorkel in Mauritius.

If card companies want to lean into the ethos of catering to the 1%, they are certainly most welcome to do so. More benefits for cardholders is a good thing — and if the wealthiest Americans are willing to pay a stiff premium for that, more power to them.

But at the same time, in this exclusivity mania, companies would be wise not to overlook the 99% whose rewards requirements are more modest. If lenders take their eye off the ball, those cardholders — whose money is just as green — mau be lured elsewhere.

Even if they’re not as well-heeled, middle-class Americans are more numerous, and essentially the bread-and-butter of the lending industry. The nature of exclusivity is that you’re excluding others — and if they feel like they’re constantly on the outside looking in, their loyalties could be shaken loose.

If and when that happens, credit card companies may regret having become so obsessed with the economics of the velvet rope.