About a decade ago, consumer banks experimented with a loyalty strategy called “relationship banking,” built around the concept that banks should reward and recognize best customers across their entire portfolio of spending with the bank – customers would earn rewards not just for their credit card spend, but also for their checking account, mortgage, and investment account balances. Pioneers like Banco Popular and Citi provided proof of concept, and other banks soon followed suit. The results were mixed – rewards earned outside the core credit card relationship were often less than motivating, and many relationship banking programs soon scaled back. Now Bank of America is launching a premium credit card with rewards tied to account balances – does this mean that relationship banking is making a comeback?
By Rick Ferguson
The Wall Street Journal has the story, which reveals that Bank of America (BoA) will roll out its new Bank of America Premium Rewards credit card in September. Powered by Visa’s reward platform, the new premium card will compete with the American Express Platinum card, the Chase Sapphire Reserve card, and many other premium and black cards competing in the already crowded affluent card market.
At the base level of earn, the card will offer two points per dollar spent on travel and dining, and 1.5 points per dollar spent on everything else – and with a low annual fee of just $95, along with a 50,000-point signing bonus for just $3,000 in spending in the first three months, the Premium Rewards card is a shot across the bow of its more expensive and less generous competitors. The real sweetener, however, is the earning accelerator for cardholders who maintain account balances at BoA. To wit:
- Customers with between $20,000 and less than $50,000 in balances earn 2.5 points per dollar on travel and dining, and 1.875 points on everything else.
- Customers with between $50,000 and $100,000 in balances earn 3 points and 2.25 points, respectively.
- Customers with more than $100,000 in balances will earn 3.5 points per dollar and 2.6 points per dollar respectively.
That, my friends, is a relationship banking program. And while earning is accelerated only by account balances, there’s no reason why BoA couldn’t later extend the program to, say, mortgage holders, or in other ways reward customers for their entire relationship with BoA. The program is generous, it provides a nice incentive for long-time customers to choose the BoA card over competing cards, and the balance sweetener should encourage sticky relationships with the bank.
The only problem – the market for premium credit cards is as competitive as it’s ever been. In addition, consumer behavior has changed: premium cardholders in particular are less likely to revolve balances and more likely to switch in search of a competitor’s lucrative sign-up offer.
Money quote from the Journal:
“Questions are arising over how profitable some of these premium cards are. J.P. Morgan lowered its initial 100,000-point sign-up bonus offer earlier this year and is pushing for about $200 million in new cost cuts in the unit that oversees the card. Among concerns in the card industry are so-called gamers, cardholders who sign up for the lucrative rewards offered early on but then stop using their cards when they redeem those rewards. Many issuers need to retain cardholders for several years or run the risk that revenue projections will fall short, said Brian Riley, director of the credit advisory service at Mercator Advisory Group Inc.”
BoA hopes that by tying richer rewards to healthy account balances, Premium Rewards cardholders will be more likely to stick around. With entire sub-reddits devoted to the art of credit card gaming, it’s a dangerous new world out there for reward card marketers. The return of relationship banking may be just the ticket for banks looking to market their premium credit cards to loyal customers, rather than deal-hunting mercenaries. Will savvy consumers take the bait?
The Points Guy certainly seems interested:
“The bank is clearly indicating that it’s targeting wealthy clients and rewarding cardholders who are loyal to Bank of America beyond just opening a credit card account. This is, in fact, the richest consumer banking bonus. Certain Citi checking accounts, by comparison, earn ThankYou Points for qualifying activities, but their bonuses amount to no more than 650 points per month. And, unlike this new BofA credit card, having a Citi checking account doesn’t multiply the points you earn from a Citi credit card... All in all, this card has huge potential. I’m depositing $100,000 into a joint BofA checking and savings account immediately since it takes three months on average for the bank to grant Platinum Honors status.”
That quote must be music to BoA’s ears. We’ll be interested to see if other issuers follow suit.
Rick Ferguson is Editor in Chief of the Wise Marketer Group.