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Bank of America (BofA) launched its Premium Rewards credit card, offering customers unlimited tiered rewards and indicating the bank’s continued efforts to build out its offerings to drive user engagement.
The card has various features that could be popular with customers.
- Attractive rewards structure: Cardholders earn two points for every dollar spent on travel and dining, and 1.5 points for every dollar spent on any other purchase. Customers can accumulate an unlimited number of points, and they have no expiration date. And cardholders enrolled in BofA’s Preferred Rewards program receive up to a 75% rewards bonus on every purchase. That means they earn up to 3.5 points per $1 on travel and dining, and up to 2.62 points per $1 on all other purchases.
- Varied redemption options: Points are redeemable for cash back as a statement credit, or deposit in a BofA or Merill Lynch account; for purchasing travel through the BofA Travel Center; or for a gift card.
- Sign-up bonus: There is an annual fee of $95, but cardholders that spend a minimum of $3,000 in the first 90 days receive 50,000 bonus points.
- Travel perks: The card has no foreign transaction fees outside of the US, and offers cardholders travel insurance for trip delays and cancellations, lost luggage, emergency evacuation, and transportation. The card also includes access to Visa’s Signature Luxury Hotel Collection Signature Concierge service to help with travel planning, restaurant recommendations, and event reservations.
The Premium Rewards card allows Bank of America to remain competitive in the fast-moving rewards market. Rewards programs have proven effective in driving users to cards in the past — almost 60% of consumers rank rewards as a major reason for adopting a credit card, according to TSYS' annual US Consumer Payment Study.
They come at a high cost for card issuers, making it imperative to drive a high volume of transactions to make up for the cost. If the programs are good, it's possible to see increased spend — rewards programs positively influence consumer spending activity, including purchase frequency and brand preference, according to a study by Excentus — but it's still important for card companies to balance attractive rewards without skyrocketing costs, which can be challenging. BofA's card could have a strong formula to attract a variety of consumers across the spending spectrum, which could help it stay competitive with other products from Amex and Chase without overspending.
Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically.
But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.
Ayoub Aouad, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed credit card rewards explainer that:
- Identifies the costs associated with offering rewards for issuers and how they have increased over time.
- Details why credit card issuers continue offering high-valued rewards.
- Analyzes how the industry has evolved since 2011
- Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs.
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