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Credit Card Companies Are Making It Harder To Get Benefits. Should You Keep Paying Their Annual Fees?

Barchart - Thu Sep 21, 1:00PM CDT

In 2013, American Express (AXP) had a problem. The country’s largest creditor was losing one of the biggest draws for its $450-a-year Platinum card: lounge access. Particularly, access into airport lounges operated by the recently-merged American Airlines (AAL) and US Airways.

Cardholders were furious. AmEx glossed over the problem by offering credits to disgruntled cardholders. Of course, the end of AmEx’s bidding with the other American led to the expansion of its new Centurion Lounge collection, which had only spun up in the months before the end of the AmEx-AA relationship. At Las Vegas’ McCarran Airport, AmEx planted the foundations for its future—not just for itself, but the broader credit industry.

Fast forward 10 years, and what AmEx started in earnest has become an arms race to provide more and more premium benefits to entice high-value, spend-y cardholders. It has also expanded beyond the pale of airport lounges—although Chase (JPM) and Capital One (COF) have launched their own lounges. Instead, it has become about pulling people in with beefy welcome offers, attractive benefits like Clear+, and valuable travel and lifestyle credits.

Of course, these premium benefits command a premium price: AmEx Platinum comes with a $695 annual fee. For Chase Sapphire Reserve, it’s $550. Even the latest entrant in the “premium travel card” game, Capital One’s Venture X card, is still $395.

All of the cards come packed with benefits—and welcome bonuses—that can sometimes offset the price of the card's fees multiple times over. So does it matter that many of these creditors are now tightening the belt on their bonuses, raising the cost to get additional cards, and adding more conditions which make it hard to use what you’re paying for?

What’s Happening?

In the early days of the COVID-19 pandemic, nobody was traveling—and that meant creditors with travel cards had to reinvent themselves. American Express turned its flagship travel cards into "stay at home cards."

AmEx launched a number of lifestyle benefits on their cards, including statement credits for streaming and wireless telephone providers, credits at Uber Eats and Saks Fifth Avenue, and so on. Eventually, those “temporary benefits” became part of the card—and AmEx announced a higher annual fee to couple with it.

The higher fee was no matter, though: AmEx had begun the work of turning its cards into social media candy even before the pandemic, enticing scores of new cardholders, especially Millennials and Gen Z-ers. During the pandemic, this trend accelerated, and the number of proprietary AmEx cards grew from 54.7 million at the onset of the pandemic to over 79.3 million in Q2 2023.

Many of these new cardholders were enticed by attractive sign-up bonuses. At one point, the AmEx Platinum boasted a 150,000 Membership Reward Point offer (worth at least $1,500.) AmEx wasn’t alone in its ambitions to acquire new customers: Chase Sapphire Reserve offered 100,000 Chase points (at least $1,000) and Capital One launched its own premium travel card with a 100,000 point offer (at least $1,000.)

All of these new cardholders meant more congestion at airport lounges when travel inevitably resumed. And as the economy recovered and interest rates began to rise, the outsized acquisition spend at creditors began to taper—and too much of a good thing became a real problem. 

Throughout 2022 and 2023, card issuers have made a concerted effort to rein in some of the most valuable benefits of their premium cards.

History Repeats Itself With AmEx

In 2013, AmEx met its match in the form of lounge troubles. In 2023, the story is much the same with its flagship offering, the Platinum Card.

American Express has aimed to restrict the number of travelers to reduce congestion in its proprietary lounges, implementing what has come to be known as the “Daycare Ban." In recent months it has also increased the minimum spend required to unlock its prized welcome offers and even changed fees for additional authorized users.

AmEx used to let Platinum cardholders get three additional authorized cards for $175 total, but will now charge $195 per card, alienating families who tried to circumvent the Daycare Ban. 

This issue has been exacerbated even further by a joint decision made by AmEx and its airline partner, Delta (DAL). Platinum cardholders will now see restricted access to Delta Sky Clubs as part of recent changes, which have even further frustrated travelers and fans.

Nonetheless, the Platinum's hefty $695 annual fee can be earned back multiple times over if users take advantage of its ample benefits—and pay a few visits to a lounge or two while traveling. It might be your day-to-day spending card, but it could help you save a few bucks on stuff you’d buy anyway.

Capital One Pales In Its Welcome Bonuses, Travel Credit

Capital One is the newest name at the cool kids' table. Since launching its premium Venture X travel card during the pandemic, Capital One has started to grow its own lounge network.

However, Capital One has made changes to how the Venture X card’s biggest benefit is redeemed. The company’s $300 annual travel credit—which makes up the lion’s share of its $395 annual fee—can now only be redeemed through its Capital One Travel portal.

This is a bit of a downgrade compared to how Venture X used to handle its annual travel credit. Cardholders could simply spend money at a covered travel vendor and receive a statement credit. This meant that the spend could accrue points, generating even greater value for the cardholder.

Capital One also implemented a new policy to restrict cardmember bonuses from being issued multiple times from the same card.

On the bright side, seeking out multiple bonuses is a bit of an edge case—and Capital One’s Venture X card could represent one of the best value premium cards in the business for those who travel. It’s a great alternative to the AmEx Platinum and Chase Sapphire Reserve for its higher 2x point per $1 spend.

Chase Has Learned Its Lessons, But Stay Wary

Chase has the luxury of being ahead of many of the changes that cardholders are now facing. Chase increased the waiting period for cardmember bonuses to 48 months in 2018, and faces no congestion problems in its limited number of proprietary lounges (at least not yet.)

Chase has also expended energy to increase its cultural permanence. For example, at Lollapalooza 2023, it hosted a Sapphire Lounge for select cardholders, making a bid for young consumers’ attention.

However, Chase’s $550 annual fee comes with a hodgepodge of benefits: Lyft Pink, DoorDash DashPass, Instacart Membership, and weird cashback amounts on certain categories which could be made up for in a cheaper card.

Should I Close My Card?

There are other premium travel cards, but none of them get the share of voice as these three—and that’s because these creditors are monsters in their own rite. Chase, American Express, and Capital One represented nearly 40% of all outstanding credit balances in February 2022. One big reason? These premium travel cards have transcended travel, turning into lifestyle cards that carry some clout.

For many cardholders, the recent changes made to premium cards will not be substantial enough to warrant change. However, the rate of changes might be cause for alarm. 

Over the years, frequent fliers have experienced the pain of mileage devaluation on airline programs. One of the big reasons for mileage devaluation has been airlines’ pursuit of bigger margins—and this problem might well find its way into the credit business, given the large volume of new cardholders awash in massive welcome bonuses. 

This opens the door for more disappointment in the future. Some travelers are worried about further hikes to annual fees on their cards, devaluation of existing points or rewards, or a “bait and switch” on benefits. Given the current momentum, this angst is understandable. Though credit businesses are not like airlines and their mileage programs, their fates have been tied together as a symptom of the times.

Ultimately, it’s important to remember that credit businesses make their money to keep you spending—but if you’re not making the most of the benefits on your card, you might evaluate whether or not you want to keep it open at all. 

Before you close a card, though, consider reaching out to your card issuer’s retention department. Every issuer has one. If you’re a sufficiently valuable cardholder, a creditor might give you reason to stay, whether that's a statement credit or waiver on the annual fee, a bonus for additional spending, or a mix of the two.

There might be better or cheaper alternatives to your premium travel card that could save you money, make you money, or help you avoid paying big interest payments if you carry a balance.

All in all, you should take score of the benefits you have on your cards, which ones you used, and which ones you didn’t. If you’re not getting back at least the annual fee of your card, you might do away with it in favor of a better alternative.

On the date of publication, Noah Weidner did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.