I love Canada (Happy 150), but one thing I don’t like about us is our credit cards. We’ve got the big 5 banks. Everyone issues their average Visa Infinite or World Elite Mastercard. While the rewards are slightly different, they all are along the same vein. You earn $1 point per dollar, and that’s equal to approximately 1-2% in rebates or 1 airline/hotel point on everyday spending. Boring. So, how do you build a better credit card?
I would really love is for someone to shake up the market. It’s not that hard. Sure, we might have slightly lower interchange rates, but from what I can see, it’s only marginally lower. A Canadian Visa Infinite Privilege/World MasterCard swipe fee is 2.08/2.06%, while in the US, it’s 2.3%. That’s a 10% difference. I’m pretty damn sure, however, that our cards are more than 10% worse than our American counterparts. Yes, we have lower economies or scale, but so does any other market in the world.
Building A Better Credit Card
For example, lower the requirements to get a Visa Infinite Privilege, turn it into metal, add some travel benefits, and increase the welcome bonus. Then you’ve got a Chase Sapphire Reserve. If you don’t know anything about that craze, these two articles from the New York Times and Bloomberg should give you sufficient background about the success of those cards.
Now, you say, the 100,000 point bonus probably cost Chase a lot. That is true. I don’t disagree with you. But, you can still improve your card without increasing the amount of money you “lose” per new cardholder you acquire. I can’t craft the numbers because I’m just a consumer, but it only takes one bright employee at a credit card issuer to propose something that drastically changes the game. I’m sure there’s some way to do it that doesn’t lose money. There’s got to be a way to make it work for both consumers and issuers.
So your card is now metal. That probably costs $5 per card at most if you have high volumes. The value from that alone is in word of mouth marketing is probably multiples higher of what it costs to make the card.
Improving travel benefits can’t cost you a lot. The best comparison I have is the milepoint Premium package years ago. That cost $49.95. It was sold by an online forum for it’s members, and included National car rental status, Hilton Gold status, other discounts and offers that consumers valued at much more than $50. Otherwise, it wouldn’t have sold out. Negotiating with Priority Pass (or DragonPass, or Lounge Key, etc.) isn’t too hard, given how much competition they’re facing. In the US, you can get one for just $50 for unlimited visits and guest privileges.
To offset this, kick up the annual fee to $499. Or $549, or $599. That should be plenty to cover the increased benefits you’re adding. Travel rewards are the most profitable sector of the marketplace, and individuals and families in higher income brackets tend to value these the most.
Then, raise the minimum spend to keep the card top of wallet. Instead of getting the bonus after your first purchase, or spend $1500 in three months to get the bonus, get consumers to spend $5000 within the first 6 months, and then another $5000 to get the other bonus. $10,000 over six months only means $1666 a month, which can’t be too hard for affluent folks, especially those adding authorized users for families and significant others.
Getting consumers to use only this card for six whole months means that you actually may increase market share. It also removes all the freeloaders who normally get the card, buy a coffee, and pocket the 15,000 points they use for gift cards. Finally, add in some sleek advertising, some intelligent marketing, and you’ve got a hit. It doesn’t even have to be a cult obsession. Just make it newsworthy, and actually valuable for consumers.
This doesn’t change anything else in your cards. I’m not talking about reducing foreign transaction fees. I’m not talking about interest rates, or bonus points on categories (which right now are lame and capped anyways). There’s some cartel in Canada that keeps the market perfectly even, so that’s that. But with what i just mentioned, you now have a card better than the American Express Platinum Card, the high-end card in Canada.
I will laugh very hard if this does happen two years from now. If anyone from RBC, TD, BMO, Scotia, or CIBC is reading this, you know how to reach me. 🙂