Banks are seeking their own rewards to make up for the billions in revenues they lost in swipe fees that they charged retailers.
Some banks, led by Bank of America, have recently hit up customers with unpopular monthly fees, totaling $60 annually per customer, and added other charges on debit and checking accounts to make up for lost profits.
But many other institutions, including JPMorgan Chase and Citigroup, are caving in to customer protests and mothballing efforts to introduce debit card fees.
So now come massive marketing blitzes for a bewildering array of bank credit card reward programs. The game is to lure customers with enticing perks: Sign-on bonus points, free travel miles and trans-Atlantic tickets, complimentary gift cards, cash back, grocery and gas discounts, concierge services, luxury purchases, auto-insurance savings and more.
But analysts say there’s no such thing as a free lunch. The banks have it figured out. Along with the come-ons, these issuers are imposing new annual fees, ranging from $60 to a punitive $495, they say.
And topped with double-digit finance charges as high as 20 percent or more, analysts say banks are betting on customers rolling over large monthly balances.
“When you talk about the Occupy Wall Street protests against the financial system, this is the perfect example,” said Bill Hazelton, founder of CreditCardAssist.com, a company that monitors the card industry. “This is a poster child for exactly what’s wrong with the system.”
Added Hazelton: “I have been in this business a long time, and I have never seen a bigger promotional push for so many credit-card reward programs. It’s phenomenal.”
Of course, customers with good credit who pay off their monthly balances can come out on top. “Most of the new credit cards will waive the annual fee in the first year,” said Lynnette Khalfani-Cox, a personal finance expert and editor at credit-card tracker CardRatings.com. “That, frankly, is one of the ways people sort of game the system and rack up miles and points. They do the required spending in the first months and then close the card before the next year.”
Fortunately for the banks, enough customers pay minimum monthly balances and roll over the debt. That makes this a lucrative business for the banks and other card issuers. And there are enough credit-card holders in the US, some 600 million, to make those balances pile up. As of May this year, total US revolving debt, practically all from credit cards, was a staggering $793.1 billion, according to the Federal Reserve.
“Consumers are paying for the Durbin Amendment,” said Madeline Aufseeser, an analyst at the Aite Group, referring to the provision that since Oct. 1 has dramatically reduced swipe fees.
She estimates the banks will lose $8.3 billion next year from the lower fees.
Best cards win
Here are the best credit cards as measured by reward bonuses versus fees by CreditCardAssist.com
* Discover More Card Relatively lowAPR with up to 5% cash back.
* Chase Freedom Visa $200 cash back after making $500 in purchases.
* American Express’ Blue Cash Card 2% cash back at gas stations.
* American Express Gold Card $175 annual fee waived first year, enrolls into Membership Rewards.