A Top Target: The Elite

  Premium and super-premium cards help issuers gain card revenue, cross-sell financial products and thank customers for their business. But finding the proper mix of benefits, annual fees, and minimum-spending, income or asset requirements is a balancing act.
  The trick, experts say, is to get the maximum number of premium and super-premium cards into the right wallets without diminishing the cards’ exclusive, members-only image.
  An air of prestige is only one factor that defines super-premium cards, according to Ken Paterson, principal analyst at Waltham, Mass.-based Mercator Advisory Group LLC.
  In a recent Mercator report, Paterson defines super-premium cards as those that require US$50,000 or more in annual account spending, a high likelihood of an annual fee, and a significant accountholder relationship with the issuer or cobrand partner in terms of assets or spending, all in return for exceptional services and rewards for the cardholders.
  Paterson calls the market for such cards “surprisingly open,” even though exclusive cards are not new.
  In 1999, American Express Co. began inviting a relatively small number of very wealthy cardholders to apply for its super-exclusive black Centurion charge card. AmEx has famously maintained an air of value and mystique around Centurion by offering it on an invitation-only basis and by sharing few details about the card’s rewards to those outside the secret Centurion society. The issuer charges a $5,000 initiation fee and $2,500 annual fee, and it requires cardholders spend $250,000 per year on the card.
  â€œIt’s a very special group of people who have that card and know what it’s all about,” says Monica Beaupre, an AmEx spokesperson.
  Beaupre confirms theories that AmEx maintains an “I’d-tell-you-but-then-I’d-have-to-kill-you” secrecy about the cards’ benefits to add to Centurion’s prestige, which then trickles down to the most proletariat of AmEx cards.
  Prestige versus market expansion has been a source of tension for premium card programs ever since AmEx issued its first Platinum card in 1984. Several issuers have launched their own premium “gold” and “platinum” cards over the years, only to repeatedly lower the qualification limits and annual fees until the cards gained more accounts but lost their exclusive status, Paterson notes.
  But, he says, the MasterCard World Elite and Visa Signature Preferred platforms, which the card networks launched last spring, seem poised to maintain their exclusivity, with minimum earning or asset requirements for cardholders and rewards that justify annual fees.
  â€œWhat seems different this time with the introduction of World Elite and Visa Signature Preferred is they are trying to target those offerings to a truly affluent tier by establishing target guidelines,” Paterson says.
  Visa designed its high-end cards with $50,000 annual minimum spending rules in exchange for experiences such as walking the celebrity red carpet at the Tony Awards, says Jennifer Schulz, Visa Inc. global head of consumer credit.
  Travel and members-only experiences are key attributes of the super-premium programs AmEx, U.S. Bancorp and Bank of America offer.
  U.S. Bancorp’s WorldPerks Visa cards, available as Visa Signature, Platinum or business credit or check cards, carry images of a commercial jet of Northwest Airlines, U.S. Bank’s cobrand partner. Besides other rewards, cardholders earn up to five WorldPerks miles for every $1 they spend with the cards at participating restaurants in the U.S. and Canada.
  U.S. Bank beefed up its super-premium Signature card perks in October 2006, partly to justify its $90 annual fee versus the $55 annual fee for its Platinum Visa. Signature benefits now include special screenings of movies before their general release and access to concerts with very limited seating.
   “Before, I would have been hard-pressed to explain to you why you should spend $90 on the product versus $55,” says Bob Daly, U.S. Bank vice president of retail payment solutions.
  Daly says adding more rewards bang for the super-premium annual fee has made cardholders use and value their Signature cards more. Annual spend is up 5% compared with before the change, for example. “More importantly, attrition is down 20%,” he adds.
  BofA’s Accolades AmEx card, introduced in June, is designed specifically for affluent clients of its investment, wealth-management and private-banking services.
  BofA designed the card based on survey input from target clients of its global wealth management and investment services. “Being in the credit card world, I thought I knew what [affluent cardholders] wanted. But talking to them, I was surprised,” says Paige Brockmann, credit and banking executive for Bank of America Global Wealth and Investment Management.
  For example, Accolades AmEx cardholders want philanthropic benefits included as reward options, Brockmann says. So every time an Accolades cardholder reaches $250,000 in card spending, he may opt for BofA to convert rewards points into cash value up to $2,500 to donate to any tax-exempt charity. BofA matches the donation, so the charity receives $5,000.
  Accolades members also like the free concierge service, Brockmann says. “We have heard from clients saying they had not been able to get a limo in Charlotte, N.C., because of high-school proms. But they called our concierge, which got them a limo,” she says.
  BofA updates some of Accolade’s rewards quarterly or monthly to keep cardholders from getting bored, Brockmann adds.
  Hey, Big Transactor
  Super-wealthy households may seem like naturals for big spending. But, as a group, less-affluent premium cardholders also can be a powerful asset for issuers, Paterson says.
  His analysis of Mercator survey results and U.S. Census data suggest that, while 51% of households that earned $250,000 or more in 2006 spend more than $4,000 per month with their cards, near-affluent households produced impressive card spending as well. Thirty-nine percent of households that earn $200,000 to $249,999 generated at least $4,000 per month in card spending, as did 31% of households that earn $150,000 to $199,999 (see chart above).
  â€œWhen you look at the near-affluent, which are more numerous, they’re a segment of high spenders as well,” Paterson says. “They are a key segment for the industry from an opportunity standpoint.”
  A high proportion of such cardholders can place significant amounts of reimbursable business expenses on their cards, adds Visa’s Schulz.
  But issuers face some challenges in trying to market the exclusive benefits of premium cards to cardholders who earn less than $250,000. “While having an annual fee is one thing that keeps the card exclusive in nature, a near-affluent consumer is going to think twice about spending $200 to $300 [to pay an annual fee] on a card,” Paterson says.
  Daly says competition will depress annual fees, even for super-premium cards. “Three to five years from now, issuers will be hard-pressed to assess an annual fee,” he says. “Issuers should be able to overcome the lost revenue by building deeper relationships with high-value customers and cross-selling other financial services.”
  BofA rebates the annual fee on its Accolade card for its global wealth and investment-management clients who maintain $100,000 in assets held at BofA, which is the minimum necessary to qualify for the card. Cardholders can continue to use their Accolades cards if their assets at BofA fall below $100,000, but they will have to pay its $295 annual fee.
  The issuer tries to make the rebate noticeable. “We don’t waive the annual fee. We rebate it to clients,” Brockmann says. “They’ll see a $295 line item [on a card statement], then they’ll see a rebate of negative $295.” He says clients BofA interviewed said the tactic reminds them of the value they are getting from the card.
  Regardless of whether premium and super-premium cards charge annual fees, maintaining their value through rewards and benefits is key to attracting cardholders and keeping them spending on their cards for years to come.
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