Credit card “versioning” to target different user segments

American Express recently launched two versions of its Blue Cash Card.  The Blue Cash Everyday has tiered reward levels (3% at supermarkets, 2% at gas stations and drug stores, and 1% on other purchases) and carries no annual fee.  Blue Cash Preferred features higher reward levels (6% at supermarkets, 3% at gas stations and drug stores, 1% on other purchases), but carries a $75 annual fee.

This continues a trend seen in recent months, with leading credit card issuers launching different versions of the same card, with one version offering greater rewards and/or bonuses, as well as higher annual fees.  These leading issuers believe that heavy credit card users will be willing to pay the annual fee in exchange for the potential to earn the greater rewards.  These heavy spenders generate significant interchange income for the issuers.

The following table is a comparison of different versions of the same card, which have recently been introduced.  In most cases, the premium card offers higher reward levels as well as bigger incentives (for their first purchases, reaching spending thresholds, or for anniversaries).  And in the case of Citi, there is also variation in the APR for its three ThankYou cards.

As credit card issuers seek to generate additional noninterest income, we should expect to see more credit card versioning.  Issuers must carefully set pricing, rewards and incentives for the different versions of the cards, and clearly communicate the benefits of each version to appeal to different cardholder segments.

Growing proliferation of credit card annual fees

Bank of America reported in mid-October that it plans to impose annual fees on some of its credit cards.  In the short term , this will probably create some bad press for the bank.  However, all of the leading card issuers are overhauling their pricing models to address new card legislation as well as huge increases in charge offs and provisions for credit losses.  So, we should expect greater proliferation of annual fees, as well as lower incidence of introductory offers and higher APRs.  Some examples below of cards from leading issuers that feature annual fees (this list does not include secured cards, many of which come with annual fees):

  • Capital One No Hassle Cash Rewards: $39 annual fee
  • Fifth Third Platinum Prime MasterCard: $89 annual fee (although note that the APR on this card is Prime + 0%
  • PNC points Visa Signature: $75 annual fee (waived with $20,000 in annual spending on the card)
  • U.S. Bank FlexPerks Travel Rewards Visa: $49 annual fee (waived first year, and waived any year when at least $24,000 is charged to the card)
  • Escape by Discover: $60 annual fee

And of course, American Express has increased marketing of its charge cards, all of which have annual fees.

Ironically, Wells Fargo appears to have dropped the $19 annual fee that came with its credit card rewards program.  Rather than market an optional rewards program to cardholders, it simply promotes rewards and non-rewards credit cards.  Wells Fargo still imposes an annual fee (of $12) for an optional rewards program with its check card, and does allow customers to pool rewards earned on check and credit card spending.