JPMorgan Chase and United Airlines have introduced a new travel rewards card that is built to attract a broader clientele.
With the two companies sharing a 30-year partnership on co-branded cards, they have released a number of rewards products. However, due to several distinctive features, this new United TravelBank card appears to be one of their more attractive products.
The United TravelBank card has a favorable rewards structure and comes at a very low cost to cardholders.
- Annual fee: Unlike most rewards cards, this new product has no annual fee. For some context, on its website, Chase offers two other co-branded cards with United Airlines; they have annual fees of $95 and $450. The lack of annual fee will likely attract a new group of consumers who may be interested in earning rewards of some type, but are unlikely to earn enough to justify the costs.
- Rewards structure: Chase and United Airlines are offering cardholders 2% back in TravelBank cash per $1 spent on United purchases, such as airline tickets or upgrades, and 1.5% per $1 spent on all other purchases. What makes this structure unique is that consumers don’t have to reach a certain cash limit in order to redeem — as a result, a cardholder could potentially redeem cash back as low as $1 to be taken off a ticket purchase.
- Sign-up bonus: Cardholders can earn $150 in TravelBank cash if they spend $1,000 in the first three months of opening their account — in comparison, cardholders of the United MilagePlace Club card earn $100 after their first purchase.
This new launch is a way for Chase to keep the pressure on its rivals in the highly competitive rewards market, without seeing some of the losses it experienced with the Sapphire Reserve card. Although the Sapphire Reserve card was extremely successful in increasing card adoption and engagement, it came at a cost to Chase. The bank isn’t expected to break even on its investment for five-and-a-half years, causing it to halve the sign-up bonus and cut $200 million in costs associated with the card’s unit.
However, Chase could see positive gains with this new offering. Some cardholders take advantage of the system by claiming a high-priced bonus before ditching the card because of its high annual fee. For instance, Sapphire Reserve cardholders earned roughly $1,500 as a sign-on bonus, but the $450 annual fee discouraged cardholders from keeping the card after reaping the rewards. With the United TravelBank card, though, cardholders receive a $150 bonus without having to pay an annual fee. And by making rewards redemption a much simpler process, Chase could also increase spending — in 2015, cardholders who redeemed rewards spent approximately $1,128 per month, while those who didn’t redeem only spent $645 per month, according to JD Power.
Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically.
But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.
- Identifies the costs associated with offering rewards for issuers and how they have increased over time.
- Details why credit card issuers continue offering high-valued rewards.
- Analyzes how the industry has evolved since 2011
- Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs.
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