As card issuers compete fiercely for the choicest customers, two divergent strategies have emerged.
On one side is the transparency approach: Make it easy for customers to rack up and redeem rewards. The other strategy could be described as careful economics: The issuer pays out the most rewards to customers who not only spend big but also want the perks badly enough to jump through hoops to get them.
In the current risk-averse, loss-weary credit environment, both strategies aim to attract the "mass affluent": safe-bet consumers who pay their bills on time, make good money and spend big.
Capital One Financial Corp., which this month added a bulked-up travel rewards card to its long-standing No Hassle Miles portfolio, is betting that the transparency approach will attract more long-term business from the most desirable customers.
"The appeal is driven more by the customer's frustration, the ongoing frustrations of having to reregister for rewards programs," Michael Wassmer, the executive vice president of card acquisitions for Capital One, said in an interview last week.
"It's a very competitive segment; many issuers are competing for those consumers. But the mass-affluent population, more than any other consumer segment, is frustrated about those nuisances."
Wassmer did not mention specific other programs. But one competitor, JPMorgan Chase & Co., this month unveiled a 5% cash-back rewards promotion on its Chase Freedom cards that requires cardholders to register every three months in order to continue earning that level of cash back, on spending categories that change every three months. (If it's home improvement in the spring, for example, it might be airline tickets in the summer.)
Only JPMorgan Chase's most engaged and attentive customers — the kind who will take the time to register again and again and keep track of changes in the type of spending rewarded — will reap high payouts. Such a program seems to adhere to the rewards philosophy an executive described in December.
"The customer is just too good at gaming right now," Rob Rosenblatt, JPMorgan Chase's general manager of customer loyalty and innovation, said then of consumers' efforts to get the most rewards for the least spending, such as by taking advantage of special offers. "So it's really important that we clamp down on those attempts to game and provide value" to loyal customers, he said. (JPMorgan Chase did not respond to queries for this story.)
Observers said JPMorgan Chase's strategy makes sense from a pure dollars-and-cents perspective.
"Rewards programs are meant to enrich the card issuer, not necessarily enrich the cardholder," John Ulzheimer, the president of consumer education at Credit.com Inc., pointed out. Still, JPMorgan Chase is "taking a chance. Even though they may not be doing it to be deceptive, I think consumers generally don't trust credit card issuers," especially in the wake of the Credit Card Accountability, Responsibility and Disclosure Act, which largely went into effect last month.
For Capital One, "it's a smart angle or perspective right now, especially after the CARD Act … to come out and be the good guy and talk about transparency … because that's frankly one of the reasons the CARD Act came out as the CARD Act," Ulzheimer said. "The commitment to be more transparent is a winner, it's a PR winner, it's a winner in the minds of consumer advocates."
JPMorgan Chase has said it would remind customers "through various channels" that they must re-enroll every three months to get 5% cash back. "Even if customers don't opt in until the end of the quarter, eligible purchases made during the quarter will receive 5% cash back retroactively," a spokesman said by e-mail this month.
The company is not alone in offering seasonal cash-back promotions that require regular re-enrollment. Discover Financial Services also offers 5% cash back to its Discover More cardholders, who also must re-enroll every three months to qualify for the promotion on changing spending categories.
There is a difference, of course, in the audience for cash-back cards and travel-rewards cards, and both JPMorgan Chase and Capital One offer a variety of cards with both kinds of rewards.
But the split between the philosophies driving their newest products is especially striking at these two issuers, which have both revamped their rewards programs over the past year.
"You're not going to convince anybody that you've got a higher-quality rewards program if it's too hard for them to evaluate and compare. Capital One can't be too transparent in this sense: the game isn't fooling or tricking the customer, it's getting them to understand that it's better," said Ron Shevlin, a senior analyst at Aite Group LLC. "They have to offer a superior deal — that's what it's going to take to steal somebody away from the competition."
Shevlin argued that JPMorgan Chase, with its 5% cash-back program, is intentionally targeting a different type of consumer rather than avoiding transparency. The issuer also has cultivated financially savvy customers with Blueprint, the online spend-management tool that it rolled out in September, as a way to appeal to consumers who want to manage their spending and payments carefully.
Issuers are "all very smart in terms of targeting specific segments of the market," Shevlin said. "If you're not the type to use personal financial management [software] and track your spending and stay on top of this thing, maybe you won't reap the benefits and you will get ticked off," he said.
JPMorgan Chase announced Ultimate Rewards, its umbrella loyalty program, last June. Capital One's new Venture card is the first result of a 12 to 18-month process of reassessing and retooling its rewards programs.
Capital One is pitching the new card mostly to consumers who are likely to spend at least $1,000 a month. In exchange for a $59 annual fee (waived the first year), cardholders will earn two points for every dollar spent. On the redemption side, every point equals 1 cent, meaning that a cardholder who spends $1,000 per month will earn 24,000 points per year, or a $240 credit toward any airline ticket, hotel room, rental car or other travel-related expense.
"We believe that over the longer run, we will end up with greater loyalty and increased usage," Wassmer said. "Putting in additional restrictions or anything that can frustrate these audiences will turn away those consumers over time."
Wassmer said Capital One expects to attract new customers with the promotion and upgrade some cardholders to the new product, but he would not be more specific about projected sign-ups or the profitability of the new card.
Capital One's long-standing No Hassle Miles card, first introduced a decade ago, offers 1.25 points for every dollar spent, and has no annual fee. (It also offers a fee-free version of the new card, VentureOne, which also offers 1.25 points per dollar spent.)
Capital One has seen some new competition in the travel space from U.S. Bancorp, which a year ago came out with a new, generic FlexPerks travel rewards card to replace the loss of a longtime airline cobranded product. The main FlexPerks card carries a $49 annual fee and has a similar points plan as Capital One's Venture card.