- Key insight: Costs and retention are challenging banks that are competing in the high-end card market.
- What's at stake: Several financial institutions, including American Express, Barclays, Citi, and JPMorganChase, target the upper end of this luxury market, while others like Capital One and U.S. Bank offer high-end cards with somewhat lower annual fees.
- Forward look: Payment consultants suggest banks make it easier to access membership benefits as a retention play.
The high-end
Banks reap several benefits by targeting this market, given that the cards attract high spenders with strong FICO scores, Brian Riley, co-head of payments at Javelin Strategy & Research, told American Banker. "For banks, it's about the relationship. You want deposits, lending products, and deep connections. It's not just the revenue proposition for the card," he added.
But it's not necessarily a slam dunk.
Here's what banks need to know about trends shaping the high-end card market:
How the market is defined
No single industry definition exists for the high-end card market. Still, it generally refers to cards designed for higher-spending consumers and businesses that combine rewards, benefits, and exclusive experiences with elevated levels of service, according to John Radecki, consumer banking leader at EY.
These products typically carry higher annual fees — in the range of $500 and above — larger credit lines, and more expansive travel, lifestyle, and business benefits than mass-market cards. "At the top end are ultra-premium products that focus on exclusivity, highly personalized service, and unique access-oriented experiences," Radecki wrote in an email.
Several financial institutions, including American Express, Barclays, Citi, and JPMorganChase, target the upper end of this luxury market, while others like Capital One and U.S. Bank offer high-end cards with somewhat lower annual fees.
"Ultimately, what distinguishes the high-end card market is not the annual fee alone, but the ability to deliver a differentiated customer experience that keeps the card at the center of the customer's financial relationship," Radecki wrote.
The renewal struggle
One challenge banks face is the competition for a relatively small pool of high-net-worth individuals. Another is renewals. It's often easier to attract cardholders with introductory points and perks, but keeping them in subsequent years is another matter, Riley told American Banker. To retain customers, banks need to make sure the year-two proposition is meaningful; there needs to be a reason to keep the card or customers won't, he added.
Fee wars
Credit cards broadly are getting more expensive to offer, prompting high-end card issuers to raise fees, David Shipper, strategic advisor at Datos Insights, told American Banker. Amex, for instance, recently raised the annual fee on its exclusive Platinum Card to $895 from $695. Chase boosted the fee last year on its Sapphire Reserve to $795 from $550.
In addition to offsetting increased costs, the move may help banks "trim the fat" on the programs, Shipper said. Cardholders who only use the card to maximize rewards may not be that profitable to the bank, he added.
Balancing customer value with profitability is one of the challenges in the high-end card market, according to EY's Radecki. "Competition continues to intensify, while the cost of rewards, benefits, and services keeps rising, making it harder for issuers to differentiate without putting pressure on margins," he wrote.
Other challenges for banks in this segment
Customer behavior adds another layer of complexity. Many cardholders spread their spending across multiple cards to maximize rewards and benefits, which can increase costs for issuers without generating a comparable increase in revenue, Radecki noted. Widening consumer adoption of AI may add more pressure to this dynamic, with EY research indicating that more than 40% of younger consumers are comfortable with AI recommending which credit card or bank account to use for a purchase, according to Radecki.
Meanwhile, expectations continue to rise, and customers want benefits that are simple, relevant, and easy to use, along with frictionless experiences across digital channels, fraud protection, dispute resolution, and rewards redemption. "As a result, issuers need to deliver a higher level of service and value while operating in an increasingly competitive and cost-conscious environment," he wrote.
Making membership services easier
In many cases, with rewards on luxury cards, users have to enroll in certain benefits individually, Beth Robertson, managing director at competitive intelligence firm Keynova Group, told American Banker. The more issuers can streamline that process and make it easier for customers, the better, and the more likely that benefits will be used, she added. Cardholders might forget or not realize they have access to x, y, z benefits, which could be useful to them. This is where a concierge service could add value — proactively helping customers onboard, she said.
Whatever a bank can do to help customers manage their account more effectively is also appreciated by luxury users, she added. Most high-end cards have some type of concierge and better access to customer support, but not all high-end cards have the same level of service, she said.
Issuers want their card to be used more frequently and be top of wallet, Robertson said. If they do it right, customers might "even get additional cards from you because they like how you service their account."
