AmEx Pumps Up Rewards for Card That Competes with J.P. Morgan's Sapphire Reserve
March 02 2017 - 12:30AM
Dow Jones News
By AnnaMaria Andriotis
American Express Co. is launching another salvo in the
reward-card wars.
The credit-card company plans to announce Thursday that it is
significantly increasing benefits on its Platinum charge card for
the second time since October. The changes, which don't affect
other AmEx cards, will go into effect March 30 and will also
increase the annual fee for the Platinum consumer card by 22%, to
$550 from $450. It is the first increase in the fee since 2007.
The moves could help AmEx better compete with J.P. Morgan Chase
& Co.'s popular new Sapphire Reserve card, while also boosting
revenue. Analysts, however, worry that rewards programs in general
are becoming too costly for card issuers.
Both cards are targeted to consumers who spend enough that the
rewards can offset the annual fees, in Sapphire Reserve's case
$450. Under the latest changes, AmEx is boosting the rewards
offered to Platinum customers who use their cards at hotels booked
through its travel agency and giving them $200 worth of Uber rides
a year.
New York-based AmEx, led since 2001 by Chairman and CEO Kenneth
Chenault, faces an increasingly tough competitive environment. The
battle is especially bruising because it is playing out in the
affluent card market -- the area in which AmEx has specialized for
decades.
After the financial crisis, banks increased their investments in
the credit-card business to make up for weakness in once-strong
units such as bond trading and issuing mortgages to indebted
Americans.
Citigroup Inc. has made a big push, winning the Costco Wholesale
Corp. co-branded card from AmEx in 2015 and rolling out its
Prestige rewards card in 2013. J.P. Morgan has followed up its
Sapphire Reserve launch in August -- a card in such strong demand
that the bank had trouble keeping them in stock -- with a loyalty
card for Amazon Prime customers rolled out in January.
Rewards programs have been fueling much of the growth in the
credit-card sector. To keep increasing card issuance and usage,
large banks have been going head to head over which can provide the
most generous rewards program that will appeal most to creditworthy
consumers.
The banks' efforts have put AmEx on the defensive. AmEx's market
share of total U.S. credit-card purchase volume fell to 22.9% last
year, according to Nomura Instinet, from 25.4% in 2015. The
brokerage firm's research showed AmEx's market share had held at
about 26% of total purchase volume between the four networks from
2011 through 2014.
Visa Inc. has picked up most of the share lost by AmEx, a lift
that is partly due to Costco switching from the AmEx network. Visa
has also benefited from joining with fast-growing issuers like J.P.
Morgan, including on the Sapphire Reserve card.
AmEx is "in a very difficult position here," said Mark DeVries,
a card analyst at Barclays PLC. "If they want to truly match what
the competitors are doing...it would be almost prohibitively
expensive."
Indeed, the company hit a record $1.4 billion of marketing
spending and promotional expenses in the fourth quarter. Additional
increases in the rewards it pays out will likely add to its total
expenses. At the same time, AmEx needs to hold on to its customers
and defend its market share.
AmEx officials said the vast majority of the recent share loss
is due to the end of the Costco relationship. Adjusted for Costco,
"we are gaining share in U.S. loans and internationally we are
growing faster than the industry in most of our major markets,"
said a spokeswoman for the company.
The AmEx Platinum card, which enjoyed a record number of new
customers last year, launched in 1984 and at the time offered
personalized travel services. In the early 1990s, the card added
points that could be redeemed for certain purchases, then boosted
the value of some of those points in 2005 and again last year.
Consumers are increasingly attuned to picking point programs
that give them the most value, analysts said. Janey Whiteside,
general manager of AmEx's global charge products, benefits and
services, said that Platinum card members are often more interested
in experiences and service over just reward points. For example,
she said the card members often cite perks like access to front-row
tickets at Beyoncé concerts and points out that the new benefits
will give cardholders exclusive access to reservations at high-end
restaurants and events like the Grand Prix de Monaco.
AmEx is also adding an annual $200 credit for Uber rides
regardless of how much Platinum users spend, in addition to
continuing an annual $200 reimbursement for certain airline
incidentals. Sapphire Reserve offers cardholders up to $300 in
reimbursements, on a dollar for dollar basis, for travel purchases
charged on the card, ranging from cabs to airfare.
(END) Dow Jones Newswires
March 02, 2017 00:15 ET (05:15 GMT)
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