Some comments from Credit Suisse on a rewards card war starting up, causing them to get negative on AXP.
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AXP's Refreshed Benefits On Gold Card – Is Rewards War Restarting?
On October 4th
2018,
AXP announced revamped benefits for its Gold card, and
also raised annual fee from $195 (waived first year) to $250 (no waiver). Before
this, the product earned 3x rewards on airfare, 2x on gas, 2x on supermarket
and 2x on dining. Meanwhile, the new Gold card will now earn 3x rewards on
airfare, 4x on dining and 4x on supermarket (no more extra earn on gas spend
for new cardholders, though current cardholders will still have this perk until Oct4th
2019). New benefits also include a monthly $10 dining credit when the card is
used at participating dining partners, which are Grubhub, Seamless, The
Cheesecake Factory, Ruth's Chris Steak House and Shake Shack. Below are
our takes:
■A sensible move from AXP to enhance T&E benefits:
We believe this move is overdue given product launches from competitors in the past 12
months that give heavy rewards to dining (Capital One Savor card gives 4%
cash back on dining and entertainment, Barclays Uber card gives 4% cash
back on dining).
■Other big competitors are likely to follow suit, thus intensifying rewards
competition:
With the new benefits, Amex Gold card, which we believe is
still 1 notch below the luxury card offerings like Amex Platinum and Chase
Sapphire Reserve, is now having higher rewards rate than Chase Sapphire
Reserve (currently earning only 3x rewards on dining) which is a luxury card
product. Given Chase has been actively promoting the Sapphire brand, we
will not be surprised if Chase will increase the rewards rate on dining in the
near future, thus maintaining an intense rewards competition environment
AXP will likely refresh benefits for its other charge card products that are
earning rewards below market rate:
Given the revamping of benefits for Platinum
card in early 2017 and the recent revamping of benefits for Gold card, we will not be
surprised if AXP will, in the near future, upgrade the benefits for its Green card product
(it is estimated there were at least 15 million Americans who carried an Amex Green
card in early 2015 – see
source, and there were 36 million active Amex cards among
U.S. consumers as of 1Q18). This product currently has $95 annual fee (waived first
year), yet only earns 2x rewards on purchases at amextravel.com and 1x on everything
else, which we believe is relatively unattractive compared to other fee products.
■It will be difficult for AXP to keep rewards rate flat going forward:
We believe this round of benefit refreshing is another reminder of the competitive rewards competition,
particularly within T&E segment. Mgmt is expecting rewards expense growth to be in
line with billing growth in 2018, thus implying a pretty much flat rewards rate, which we
now believe will be hard to achieve with this round of benefit refresh. Nonetheless, we
believe the impact on rewards and service expenses due to the new benefits on the
Gold card will be less than that due to previous benefit refresh on the Platinum card in
early 2017, as the credits on the Gold card are smaller and somewhat more restrictive.