Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Fall is in full swing in New York. The temperature
Speaker 2: is dropping, the leaves are changing. But cast your mind
Speaker 2: back with me for a minute to the dog days
Speaker 2: of summer and one of its biggest sporting events at
Speaker 2: the US Open. The adrenaline of New York just gets
Speaker 2: going for some of the players. This year, Carlos Alcaraz
Speaker 2: defeated his rival Yannick Sinner to claim the title of
Speaker 2: men's singles champion. Arena Sablenka won her second straight title
Speaker 2: on the women's side. Bloomberg's Amanda Male was there, but
Speaker 2: not just for tennis.
Speaker 3: It's a tennis competition, but it's also in some instances
Speaker 3: in Olympics of luxury branding.
Speaker 2: Amanda has been following a different kind of match, the
Speaker 2: one between luxury credit cards. For years, American Express and
Speaker 2: Chase have been vying to be the preferred premium credit
Speaker 2: card of America's richest consumers, and at the US Open,
Speaker 2: they were pulling out all the stops.
Speaker 3: What both of the banks had done was sort of
Speaker 3: set up a series of spaces, lounges, terraces, places that
Speaker 3: you could grab refreshments, get a free hairtie and some
Speaker 3: free sunscreen, and you were able to access different versions
Speaker 3: of those spaces or different types of them, depending on
Speaker 3: your status as a cardholder or like what kind of
Speaker 3: card you held within the company's selection.
Speaker 2: These card companies aren't just duking it out on the
Speaker 2: sidelines of tennis matches. From exclusive fashion Week events to
Speaker 2: bespoke airport lounges and partnerships with brands like Lululemon, Chase, MX,
Speaker 2: and a handful of competitors are doing whatever it takes
Speaker 2: to convince a specific group of high earners to do
Speaker 2: their swiping with them.
Speaker 3: If you look at the highest earning ten percent of households,
Speaker 3: which is roughly households above two hundred and fifty thousand
Speaker 3: dollars a year, they do half of all of the
Speaker 3: consumer spending in the United States. It's a third of
Speaker 3: American GDP. It is an enormous amount of day to
Speaker 3: day spending.
Speaker 2: These wealthy Americans have helped make premium credit cards the
Speaker 2: fastest growing sector of the card industry, and they're paying
Speaker 2: between four hundred and nearly nine hundred dollars a year
Speaker 2: in annual fees to the credit card companies that offer them.
Speaker 2: So what's the endgame here and who's winning. I'm Sarah Holder,
Speaker 2: and this is the big take from Bloomberg News today
Speaker 2: on the show Premium credit Cards Hit the Court, how
Speaker 2: the leading credit card companies are pushing for an advantage
Speaker 2: point with America's top spenders game set match. It tracks
Speaker 2: that the people spending the most money in the American
Speaker 2: economy are the people with the most money.
Speaker 3: It's always been the case that the people do a
Speaker 3: disproportionate amount of consumer spending because the more discretionary income
Speaker 3: you have above and beyond your basic needs, the more
Speaker 3: opportunities you have to do discretionary spending.
Speaker 2: But Bloomberg BusinessWeek reporter Amanda Mall says, over the past
Speaker 2: few decades, the gap between the consumer spending of the
Speaker 2: wealthiest ten percent of Americans and the rest of the
Speaker 2: country has been widening.
Speaker 3: A big reason that consumer spending has gotten more disproportionate
Speaker 3: is that as wages have stagnated, and more recently, as
Speaker 3: like the job market has sort of frozen, so it's
Speaker 3: really hard to leave or find a new job. What
Speaker 3: has gone up in value is assets. If you own stocks,
Speaker 3: if you own real estate, if you own anything that
Speaker 3: appreciates you are probably feeling a lot more flush than
Speaker 3: someone who makes like a similar amount of money to you,
Speaker 3: perhaps but does not have those investments. So the people
Speaker 3: who own assets, they are sort of running away with
Speaker 3: the economy at this point.
Speaker 2: And as those top earners become an increasingly powerful spending block,
Speaker 2: credit card companies have been eager to woo them.
Speaker 3: You want to be in business with this particular customer,
Speaker 3: because the main way that credit cards make money, that
Speaker 3: they generate revenue is through interchange fees.
Speaker 2: Every time a customer swipes, the credit card company pockets
Speaker 2: a percentage of the total transaction. The higher the transaction,
Speaker 2: the more companies make.
Speaker 3: So putting a lot of effort and capital and time
Speaker 3: and energy into figuring out what those people want, where
Speaker 3: they are, and how they can be motivated is really
Speaker 3: really huge for brands.
Speaker 2: One of the ways credit card companies have targeted those
Speaker 2: big swipers is by offering a product they pitch as
Speaker 2: a premium credit card, which offers extra perks in exchange
Speaker 2: for an annual fee.
Speaker 3: You saw really the first flurry of activity in premium
Speaker 3: rewards credit cards in the nineteen eighties. That is, you know,
Speaker 3: the Yuppi era, the greatest Good era of the final
Speaker 3: guys in Armani suits. This is a time when like
Speaker 3: this sort of consumer culture of the US was beginning
Speaker 3: to shift to cater itself more to like very high earners.
Speaker 3: And in nineteen eighty four, AMX came out with its
Speaker 3: first Platinum card. It was at the time and invite
Speaker 3: only credit card, so it was for a very small
Speaker 3: percentage of very high earners that already had relationships with MX.
Speaker 3: But over time, as credit cards became an even more
Speaker 3: dominant form of payment within the US, as they became
Speaker 3: more widely accepted and safer to use, American Express and
Speaker 3: its competitors all sort of expanded those programs. The Platinum
Speaker 3: card eventually became available for open application. It's still a
Speaker 3: little hard to get. You have to be high income
Speaker 3: and have very good credit. Those programs began to be
Speaker 3: more widely pitched. As this disparity in discretionary spending grew.
Speaker 2: So the number of elite spenders grew and the way
Speaker 2: that credit card companies were marketing their premium offerings expanded
Speaker 2: as well. Yes, for a long time, American Express dominated
Speaker 2: the premium market.
Speaker 3: American Express has been set up to service the needs
Speaker 3: of high earners since like the eighteen nineties when they
Speaker 3: came out with their first travelers checks. Other banks had
Speaker 3: other premium credit cards, especially when banks started to partner
Speaker 3: with airlines to help administer frequent flyer rewards programs, but
Speaker 3: it was always sort of an article of faith that
Speaker 3: this was like sort of American Express's market. And then
Speaker 3: in the mid twenty tens, American Express went through some
Speaker 3: changes with its business. It lost its partnership with Costco,
Speaker 3: which accounted for fully like one in ten of American
Speaker 3: Express cards in circulation in the United States at the time.
Speaker 2: Costco executives felt amex's transaction fees were too high, so
Speaker 2: when their credit card agreement was up for negotiation in
Speaker 2: twenty fifteen, the two companies parted ways.
Speaker 3: Visa gave them a better deal on interchange fees, so
Speaker 3: they switched to Visa, and that, you know, created some
Speaker 3: turmoil within AMX, and they decided that they were going
Speaker 3: to double down and go all in on really pursuing
Speaker 3: these affluent to wealthy customers that have always been their
Speaker 3: sort of bread and butter. But before they could get
Speaker 3: some new upgrades out to their Platinum card. In fallow
Speaker 3: twenty sixteen, Chase came to market with the Chase Sapphire Reserve.
Speaker 3: At the time it had a four hundred and fifty
Speaker 3: dollars fee that has since been increased several times. It
Speaker 3: is now seven ninety five. And Chase really saw Amex
Speaker 3: as vulnerable at that time. They looked at this company
Speaker 3: that was, you know, servicing a really desirable segment of
Speaker 3: the public, and went, maybe we can do that better
Speaker 3: if we have the right combination of amenities in fees
Speaker 3: and perks and things that we can offer. And Chase
Speaker 3: is a part of JP Morgan Chase. It is a
Speaker 3: huge company that has like the financial resources to do
Speaker 3: all kinds of things that like virtually no other financial
Speaker 3: institution in the US as the resources to do.
Speaker 2: The rollout costs two hundred to three hundred million dollars.
Speaker 2: Chase was ready to play.
Speaker 3: They said, well, why can't we beat AMEX at its
Speaker 3: own game? And then AMX of course fired back.
Speaker 2: In twenty seventeen, AMX tacked on a two hundred dollars
Speaker 2: a year Uber credit and invitation to a pop up
Speaker 2: restaurant in the Hampton's and five times points for flights
Speaker 2: and hotel states.
Speaker 3: And these cards get a refresh every three to five
Speaker 3: years usually, so we've been in sort of a cycle
Speaker 3: of refreshing and competition ever since.
Speaker 2: And that brings us to today when MX and Chase
Speaker 2: are still kind of jockeying for the top billing in
Speaker 2: the premium credit card space. Walk me through the pitch
Speaker 2: that these two credit card companies are making. How are
Speaker 2: they getting people to sign up for the Chase Platinum
Speaker 2: Reserve and not the other guy?
Speaker 3: Well, it's funny, Like I do think it gets confusing,
Speaker 3: Like I mean, you said yourself, the Chase Platinum Reserve,
Speaker 3: Like it's the AMEX the platform, and it's the Chase
Speaker 3: Sapphire Reserve.
Speaker 2: Okay, got it, Chase Sapphire Reserve, Amex Platinum card.
Speaker 3: Credit card branding is very confusing because like the fundamental
Speaker 3: problem of the credit card space is that, like the
Speaker 3: day to day process of using a credit card is
Speaker 3: exactly the same no matter what card you're using. You
Speaker 3: take it out of your wallet, you tap it, you
Speaker 3: swipe it. So credit card issuers need you to use
Speaker 3: their card versus all of the other ones in your wallet,
Speaker 3: and these companies, by their very nature have a lot
Speaker 3: of consumer data, so they can see what their high
Speaker 3: income clients do with their money and like what they prefer,
Speaker 3: the kinds of brands they shop from their leisure activities.
Speaker 2: So they end up offering a lot of similar perks.
Speaker 3: Airport lounges, free upgrades to nicer seats on an airplane,
Speaker 3: first DIBs on restaurant reservations, retail or brand purchase credits.
Speaker 3: So spend money at Lululemon and quarterly you get a
Speaker 3: seventy five dollars refund.
Speaker 2: All these different cards, it's all these similar perks. How
Speaker 2: is someone supposed to choose what card to get?
Speaker 3: It's like very difficult because like not only do American
Speaker 3: Express and Chase have their own sort of like mainline
Speaker 3: premium cards, but they both co brand cards, as every
Speaker 3: card company does with hotel chains, with airlines, like Chase
Speaker 3: has its United cards, MX says it's Delta cards. It
Speaker 3: sort of depends on like like what your actual spending
Speaker 3: habits are and if you can sort of evaluate them dispassionately.
Speaker 2: Charlotte Zolar is one card holder who's trying to make
Speaker 2: that calculus for herself.
Speaker 1: Right now, I feel like I'm getting my money's worth,
Speaker 1: and at the same time, I feel like I am
Speaker 1: working to make that happen. I'm now tracking to make
Speaker 1: sure I use all of my perks.
Speaker 2: Charlotte first signed up for an MX Platinum card in
Speaker 2: twenty twenty one. She was starting to make more money
Speaker 2: and she wanted to go out to eat at nicer
Speaker 2: restaurants travel better. But last year, Charlotte decided to give
Speaker 2: the Chase Sapphire Reserve a try.
Speaker 1: MX's lounges have gone downhill significantly. The perks of the
Speaker 1: hotel program have kept me there, but the points also
Speaker 1: have don't stack up as well as Chases.
Speaker 2: Charlotte is now weighing whether she should keep paying for
Speaker 2: both cards, which cost her more than twelve hundred a
Speaker 2: year combined, or commit to just one.
Speaker 1: It makes me feel a little bit silly, honestly paying
Speaker 1: for both. I've gotten into a frustrating place because I
Speaker 1: like how the Venn diagram of perks shifts into cocentric
Speaker 1: circles when I have both cards.
Speaker 2: Charlotte's dilemma speaks to a bigger issue for these credit
Speaker 2: card companies, as more of them offer premium cards with
Speaker 2: similar perks. It's getting harder and more expensive to differentiate themselves.
Speaker 2: That's after the break. American Express and Chase have slightly
Speaker 2: different motives when it comes to recruiting high income customers.
Speaker 2: MX's business is based around finding and keeping premium card holders,
Speaker 2: and the company says it has a ninety eight percent
Speaker 2: retention rate. Chase wants those same premium card holders, but
Speaker 2: it's also hoping to convert them into JP Morgan banking clients.
Speaker 2: And nearly a decade after these credit card companies started competing,
Speaker 2: BusinessWeek reporter Amanda Mole has been trying to figure out
Speaker 2: whether their strategies have been paying off.
Speaker 3: Chase confirmed to me that, like the Sapphire Reserve, is
Speaker 3: profitable unto itself, profitable even if cardholders don't go into
Speaker 3: any of their other financial services offerings, even if they
Speaker 3: don't take out a mortgage with Chase, even if they
Speaker 3: don't do wealth management with Chase, And like in general,
Speaker 3: AMEX really only offers premium cards. They don't really do
Speaker 3: much of a business in lower credit quality, lower income
Speaker 3: client But like they're a very profitable company, there is
Speaker 3: a real business case for spending all of this money
Speaker 3: and all of this time and investing all of this
Speaker 3: capital in attracting these consumers because they do such a
Speaker 3: disproportionate amount of spending in the US. Like it nets out,
Speaker 3: the ROI is good, but what.
Speaker 2: Works in the US hasn't translated to other parts of
Speaker 2: the world.
Speaker 3: Part of what makes the math on this work for
Speaker 3: card issuers is that in the United States there is
Speaker 3: not any cap on interchange fees. You don't get a
Speaker 3: lot of these cards in Europe because Europe regulates how
Speaker 3: large of a percentage of each transaction that card companies
Speaker 3: can take. America caps that for debit cards, but not
Speaker 3: for credit cards. So the premium cards, even within the
Speaker 3: same issuer, they command a higher interchange fee. It can
Speaker 3: get up to like three percent to five percent, depending
Speaker 3: on what card you're looking at and what type of
Speaker 3: transaction it is in the size. So it's these transactions
Speaker 3: that are sort of underwriting these benefits. If you cap
Speaker 3: them as most other markets do, like the math doesn't
Speaker 3: work out as well.
Speaker 2: MX recently announced that its Platinum Cards annual fee would
Speaker 2: go up two hundred dollars a year to eight hundred
Speaker 2: and ninety five dollars, and the Chase Sapphire Reserves fee
Speaker 2: just went up two hundred and forty five a year
Speaker 2: to seven hundred and ninety five dollars. Part of the
Speaker 2: reason for the fee hikes, Amanda says, is this fear
Speaker 2: that the US could begin capping fees.
Speaker 3: I think banks have been nervous for years that there
Speaker 3: is going to be regulatory action on interchange fees in
Speaker 3: the US, and there has been a lot of threat
Speaker 3: that regulatory bodies are going to sort of like come
Speaker 3: in and reduce the amount that these cards can charge.
Speaker 3: The odds of that happening during like a Trump administration
Speaker 3: are I think somewhat muted. But like banks look at
Speaker 3: this as sort of a long term project.
Speaker 2: That's really interesting. So if they have to charge less
Speaker 2: per transaction at a grocery store or a corner store,
Speaker 2: they're going to make up that money by charging these
Speaker 2: elite spenders more each year.
Speaker 3: That's part of it, definitely is the anticipation that you
Speaker 3: need to train cardholders to expect a highee, because you
Speaker 3: may need one in order to make the card business
Speaker 3: solvent in the future at some point. But then there's
Speaker 3: also I think a desire to like thin the herd
Speaker 3: a little bit. I heard this from a few people
Speaker 3: within the industry. Banks who are providing all these perks
Speaker 3: wants you to pick. They don't want you to have
Speaker 3: both cards and sort of like gain max value out
Speaker 3: of those cards and then move on to the next
Speaker 3: card and extract value from that. They want you to say, Okay,
Speaker 3: if it's going to cost me a thousand dollars, I'm
Speaker 3: just going to get the platinum or the Sapphire reserve
Speaker 3: and be done with it. Because this is it's too much,
Speaker 3: it's too annoying.
Speaker 2: I'm wondering whether these cards actually make economic sense for
Speaker 2: most consumers. Are they getting their money's worth out of
Speaker 2: these perks If you're paying basically one thousand dollars a
Speaker 2: year for a credit card.
Speaker 3: Well, I think for most consumers they don't make sense.
Speaker 3: And I think that the banks themselves would tell you
Speaker 3: that this is like not a card for everybody. They
Speaker 3: want like a particular psychograph of consumer to sign up
Speaker 3: for these cards.
Speaker 2: For these particular kinds of customers, paying for a premium
Speaker 2: can be worth it, despite the cost or because of it.
Speaker 3: These cards are absolutely status symbols. There's a reason that
Speaker 3: they're all made of metal. Now they have a nice
Speaker 3: like plunk when you put them down on a table
Speaker 3: in a restaurant. It has always been true that charging
Speaker 3: more for something, if it's the right type of something,
Speaker 3: if you've communicated about it correctly to your customer, charging
Speaker 3: more for something can make it itself more valuable. The
Speaker 3: US open sponsorship, the airport lounges, partnerships with like luxury
Speaker 3: hotels and getting you into first class and an airplane.
Speaker 3: That is all designed not just to woo customers, but
Speaker 3: to also burnish the reputation of these cards as luxury
Speaker 3: goods themselves.
Speaker 2: So in the premium credit card matchup, who's winning, Amanda
Speaker 2: says figuring that out is not as straightforward as tallying
Speaker 2: up points. Neither company discloses figures on how many premium
Speaker 2: card holders they've enrolled.
Speaker 3: There has been some math done out there that among
Speaker 3: American Expresses Delta cards it seems like there is about
Speaker 3: six to eight million holders of those cards, if you
Speaker 3: know the co branded card is bringing in that many people.
Speaker 3: Then across the lineup there is the mainline platinum, and
Speaker 3: then it chased, there is the preferred preferred business, and
Speaker 3: American Express also does a platinum business like it is
Speaker 3: like millions and millions of people this summer. When Chase
Speaker 3: launched their refresh of the Chase Sapphire Reserve card, there
Speaker 3: was like a real sense of like, oh, like Chase
Speaker 3: is very very serious. Chase is maybe like making a
Speaker 3: real dent in this. And Chase told me that they
Speaker 3: believe that they are winning this war for America's wealthy consumers.
Speaker 3: But the Amex launch in September that came a few
Speaker 3: months after the Chase relaunch has been received like really
Speaker 3: really well. They have such a long history with this.
Speaker 3: They just have a real head start in a lot
Speaker 3: of the categories that make a real difference to this
Speaker 3: type of shopper. So Chase is investing an enormous amount
Speaker 3: of capital in catching up. But I think they're still
Speaker 3: catching up.
Speaker 2: They're both bringing their metal credit cards to the knife fight.
Speaker 2: We'll see how it ends.
Speaker 3: Thanks so much, Amanda, of course, thank you.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
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