Swipe, Spend, Repeat: The Perks Arms Race in Your Wallet

Speaker 1 Chicago, how are you feeling right now? Make sure

Speaker 1 it is. Yeah,

Speaker 2 yeah. It's Lollapalooza, a steamy summer day.
The music is thumping. Our colleague Imani Muiz was there last year.

Speaker 3 You know, bright outfits, festival goers, lots of drinks flowing, cups and hands, things like that. And it could be really overwhelming.

Speaker 2 But steps away from the chaos of the festival, she found an exclusive hideaway.

Speaker 3 You got access to this air-conditioned area, and then they had a private bar, plush seating, and one of the more popular amenities in this area was actually the bathroom, because they had flushable toilets as opposed to, you know, the port-a-potties that can get very

Speaker 3 gross on a summer day. Right.

Speaker 2 I mean, to be honest, half the time when I'm invited to like go to a music festival or a concert, I'm always like, what's the bathroom situation?

Speaker 3 So I can understand the draw. Hot commodity for sure.

Speaker 2 And the key to unlocking this oasis of free food, booze, and flushing toilets?

Speaker 3 You have to flash the right credit card. And in this case, it's the Chase Sapphire Reserve card, which is their most premium card.

Speaker 2 A credit card. In the last few decades, credit cards have done more than loan you money.
They've been symbols of exclusivity and access. But those perks don't always come cheap.

Speaker 2 The annual fee on Chase's most premium card has been climbing. And just recently.

Speaker 3 Chase just announced its largest fee increase yet for the Sapphire Reserve card. They're raising it by 45% to $795.

Speaker 2 $800. I mean, that's not cheap.

Speaker 2 But Chase doesn't seem worried about raising its price.

Speaker 3 The banks, the credit card companies have really stumbled on to a winning strategy.

Speaker 3 They're really optimistic that they can convince their customers that these new benefits are truly worth this higher price point.

Speaker 3 This is a story about the credit card companies testing the limits of what people are willing to pay for these credit cards.

Speaker 2 Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza.
It's Tuesday, July 1st.

Speaker 2 Coming up on the show, why fancy credit cards are getting even pricier.

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Speaker 2 The first payment cards debuted in 1950. They were made from cardboard.
And at the time, credit cards were simple payment tools.

Speaker 5 The new products of the 80s are now under the MasterCard name.

Speaker 2 Using a credit card lets you pay for things on credit. At the end of the month, you pay off your balance or carry some of the money with interest.

Speaker 2 Basically, it's pre-approved loans to pay for, say, groceries, clothes, or meals at restaurants.

Speaker 2 The companies behind them get a small cut from that interest, as well as from various fees: transaction fees, annual fees, late fees.

Speaker 2 But as the market got more competitive, credit card companies needed a way to stand out. One idea was to dangle little rewards for loyalty, things like cashback, travel rewards, and points.

Speaker 6 So, what's in it for you? The miles. Only one card lets you earn frequent flyer miles on every major U.S.
airline.

Speaker 3 Perks began to escalate because all cards were kind of the same, right? So, why should a customer use one company's card over another?

Speaker 3 And the way that you do that is you convince them that your perks are better than another card company's perks.

Speaker 3 So, that's how it started. It's really the card companies competing to prove that their little piece of plastic is somehow better than than another company's piece of plastic.

Speaker 2 Perks started to become the big differentiator, and one name in Perks stood above the rest.

Speaker 3 Definitely, Amex.

Speaker 6 The American Express card.

Speaker 1 Don't leave home without it.

Speaker 3 It was Amex's idea to be exclusive from the start. They wanted to be the card that CEOs, celebrities had in their wallet.

Speaker 6 You guys take American Express? Let's go!

Speaker 3 If you're looking for a more affluent segment, they want more exclusive perks. So that's why you had American Express doing things like the airport lounges.

Speaker 3 They pioneered that, this exclusive experience to get you kind of out of the fray of the boarding experience and the airport gates.

Speaker 6 On every American Express card, there is one word we take very seriously.

Speaker 1 Member.

Speaker 7 American Express customer service.

Speaker 6 To us, membership means personal service.

Speaker 3 And then in the 80s, they launched their platinum card, which was kind of the first of these super premium cards. And the fee at that time was $250 a year.

Speaker 3 And just to put that in perspective, $250 in 1984 when the card was launched, that's almost $800 of today's money.

Speaker 2 Using a platinum Amex was a flex.

Speaker 3 Slapping it down on the counter as you're paying for something with a status symbol. You might get looks from a clerk here and there.
So that was part of the lore of that card, if you will.

Speaker 2 The card and its elite perks were so successful that in 1999, Amex went a step further. It launched a new card you couldn't even apply for.

Speaker 3 That card actually launched as a response to rumors about this super exclusive Amex card that was only available to celebrities and it was invite-only.

Speaker 2 It had a distinct monochromatic look. Officially, it was known as the American Express Centurion card.

Speaker 3 That card was colloquially known as the Black Card.

Speaker 5 Black Card

Speaker 5 Card.

Speaker 1 The American Express Black Card is the only.

Speaker 2 And it even became commonly referenced in popular music.

Speaker 2 Black card members pay a $10,000 initiation fee and a $5,000 annual fee. In exchange, they get things like free upgrades at luxury hotels and access to red carpet events.

Speaker 2 I do sort of remember when everybody was like, oh, yeah, they have a black card,

Speaker 2 implicitly saying they can pretty much afford anything.

Speaker 3 Yes, yes.

Speaker 2 In the 2000s, perks were driving credit card loyalty, and American Express was the undisputed heavyweight.

Speaker 2 But as millennials started making more money and craved experiences they could post on Instagram, a new player saw an opening. It started to come for Amex's crown.

Speaker 3 Sapphire Reserve from Chase.

Speaker 1 Make more of what's yours.

Speaker 3 So in 2016, JP Morgan Chase, the largest bank in the country, kind of stepped up to the plate. And Chase's big play for that market was introducing the Chase Sapphire Reserve card.

Speaker 3 And it had a lot of... comparable perks to the Amex Platinum, but what made a really big difference was that they had this crazy sign-on bonus.

Speaker 2 The offer was wild. Enough points for a round-trip flight from New York to Tokyo.

Speaker 3 They were offering 100,000 points in travel rewards to people who met a certain spending threshold in the first three months of the card. But really at the time, it was a no-brainer to sign up.

Speaker 3 And it was almost like they were paying you for having the card.

Speaker 5 Well, there's a hot new credit card that is all the rage among millennials.

Speaker 8 You earn 100,000 bonus points, which equal $1,500 to spend toward airfare, hotels, cruises, and car rentals.

Speaker 9 This card is really beloved by many, especially millennial, young professional, urban types.

Speaker 3 The other thing that was really unique about the Chase Sapphire was that prior to that, most credit cards were made out of plastic. Most of them to this day are still made out of plastic.

Speaker 3 But there was the black card, which was made out of titanium, right?

Speaker 2 Of course it was. Of course it was.

Speaker 3 Why wouldn't it be? Because it's fancy. It needs to make a sound when you drop it.

Speaker 3 But then when Chase introduced the Sapphire Reserve, their card was metal. As a matter of fact, the card was so popular when it launched, Chase temporarily ran out of the metal to make it.

Speaker 1 That's wild.

Speaker 3 Chase lost money the first few years that the card was out, and they had to shut down that sign-on bonus early because it was so wildly popular.

Speaker 3 But that was the first time that these types of premium cards were,

Speaker 3 that they were really marketed. to the everyman or like the mass affluent consumer segment more so than just that exclusive exclusive business class.

Speaker 2 Chase's Sapphire Reserve card was a blockbuster, despite its original $450 annual fee. Although the fee was on par with other premium cards, mid-tier cards only charged about $100

Speaker 2 or no fee at all. The Sapphire Reserve also had higher than average interest rates.

Speaker 3 You should not carry a balance on these cards. I think that's the short of it.

Speaker 3 Like if you do carry a balance, especially for more than a month, the interest payments will quickly, quickly offset any benefits that you may get from these cards.

Speaker 3 And that's before you even account for the annual fee.

Speaker 3 So having said that, how would you describe the luxury card landscape of the past few years? It remains really competitive. The two bigger players are Chase and MX.

Speaker 3 Amex, I think they have a few decades of

Speaker 3 experience and history in this market. So some of that is just momentum, but Chase is gaining quickly.

Speaker 3 People think the Sapphire's gotten a leg up on the Amex cards now, though.

Speaker 3 And especially in making it a little bit more accessible to, again, mass affluence, maybe millennials, up-and-comers, younger generations.

Speaker 3 These experiences are becoming a larger part of their value proposition to their customers.

Speaker 3 So, what we're seeing is an arms race, and the perks are becoming ever more luxurious and ever ridiculous and in a way you're kind of seeing banks become hospitality companies.

Speaker 2 Which brings us to Chase's latest fee increase. Members now pay $795 a year for the promise of even more exclusivity.
That's $100 more than an annex platinum.

Speaker 2 But how much can Chase push that fee before longtime customers push back?

Speaker 2 The new price tag is scaring me a little bit.

Speaker 5 There's a lot of sticker shock. You can't afford this.

Speaker 2 Chase's big gamble is after the break.

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Speaker 7 My name is Brittany Smith, and I've been a Chase Sapphire Reserve member for the past six years now.

Speaker 2 Brittany's a teacher in New Jersey. She's one of those millennials who jumped in years ago to grab a Chase Sapphire Reserve card.
She was traveling more frequently, so she got in for the points.

Speaker 7 And I realized I was missing out on a ton of perks and benefits that come along with certain travel credit cards. And I kept hearing about the Chase Sapphire Reserve, and I decided to research it.

Speaker 7 And it seemed like the best deal at the time. So that was part of the reason why I ended up joining the CSR team.

Speaker 2 In case you didn't catch that, that CSR team, as in Chase Sapphire Reserve.

Speaker 3 It's intense.

Speaker 3 I've coined the term.

Speaker 2 The annual fee when Brittany joined was $450.

Speaker 2 At the time, she felt that the math and the perks worked in her favor.

Speaker 7 So it made sense to pay that annual fee because the $300 travel credit alone helped it pay for itself, basically.

Speaker 2 Brittany became a Chase Sapphire Reserve evangelist, often trying to convince family and friends to convert to the card.

Speaker 2 Then, last week,

Speaker 7 I officially received the email from Chase Sapphire explaining, you know, the quote-unquote new perks and the price jump.

Speaker 7 But yeah, initially it was just shock, and I immediately felt overwhelmed, and it just turned into frustration, really. $795 is steep, and I feel like unless you're

Speaker 7 truly utilizing all of the credits, it's just not going to be worth it. And this might not be the card anymore, unfortunately.

Speaker 2 Chase says it doesn't expect much attrition. Even with the fee increase, Chase says, customers can still get more than $2,700 in annual value from the perks.

Speaker 2 The company is also counting on longtime customers who don't want to pay the new fee to stick with Chase, but maybe downgrade to a less expensive card.

Speaker 2 Our colleague in Mani Moiz heard a range of customer reactions. Some were angry, annoyed by some of the changes.
Others were nonchalant about the price hike. Some are crunching the numbers.

Speaker 3 One of my favorite reactions was a guy who didn't even realize what his annual fee was.

Speaker 1 No.

Speaker 3 Yes.

Speaker 3 But when I told him about the price increase, he kind of quickly

Speaker 3 justified it and saying, you know what? Like I use the lounge X amount of times. I've used my rewards to go here and here and here.

Speaker 3 So I'm pretty sure I could make it work. I did talk to one card holder who actually has both the Chase Sapphire Reserve and the Amex Platinum.

Speaker 3 And with this new increase, he's now in a position where he's going to be paying more than $1,000 a year just in credit card annual fees.

Speaker 3 And he says that he needs to make a decision as to which card to keep. Right now, it's not looking good for the Sapphire Reserve.

Speaker 2 So what is Chase betting on here? What's the business rationale?

Speaker 3 What the banks are betting is that like if you don't care about the fee, you're going to spend more money.

Speaker 3 And just the fact that you're paying this higher fee is going to make you feel like you have to spend more to make it worth it. And so it's going to increase engagement, which increases their revenue.

Speaker 3 There's definitely a segment of the market that is not going to care.

Speaker 3 They're going to do what the first person I spoke to did and quickly rationalize the fact that, hey, I'll get more benefits out of this, even if they don't.

Speaker 3 There's a CFEB stat saying that $33 billion of credit card rewards were just kind of left unused at the end of the year that the study was done.

Speaker 2 $33 billion of just like money on the table that people are leaving?

Speaker 3 Yes, and that was out of $40 billion worth of rewards earned that year. So, yeah, I think that's a calculus that's been proven over and over again.

Speaker 2 For the banks, it's a trade-off. They might lose more price-sensitive customers, people like Brittany, that teacher in New Jersey.
But if their core customers spend more on the card, they win.

Speaker 2 In 2022, banks earned $6.4 billion in revenue from annual credit card fees, double what they made in 2015. All the more reason to keep pushing the envelope on those fees.

Speaker 3 As Chase started to tease

Speaker 3 the card refresh that it just announced with the higher fee, Amex started teasing its own refresh that it's going to announce later this year because it's a company that prides itself on having the highest price point in the market.

Speaker 3 So

Speaker 3 I think we could reasonably expect that their new fee is going to be even higher than what Chase just announced.

Speaker 2 So what could this trend of higher fees and more perks mean for credit card companies?

Speaker 3 It means that these credit card companies are kind of in the experience business, right?

Speaker 3 Like if convincing consumers that, again, their piece of metal or plastic is better than a very comparable piece of metal or plastic depends on the experiences and the feelings that they can get out of that card.

Speaker 3 You're seeing them invest more and more in things like dining, lounges, hospitality, things like that.

Speaker 2 What does this tell you, Amani, about what people are willing to spend to get a little bit of exclusivity?

Speaker 3 I mean, so far it seems like they're willing to spend at least $800.

Speaker 3 Like people like feeling special. And if you can give them that because it's an intangible psychological feeling of having something exclusive,

Speaker 3 being given access to something that other people can't, but also in a visible way so people see that you have this thing. It's hard to put a dollar figure on that.

Speaker 2 That's all for today, Tuesday, July 1st. The journal is a co-production of Spotify and the Wall Street Journal.
Additional reporting in this episode from Jacob Passey.

Speaker 2 Thanks for listening. See you tomorrow.