Amex v. Chase: Who Will Win the Battle for America’s Top Shoppers?

0:07Fall is in full swing in New York. The temperature is dropping. The leaves are changing. But cast your mind back with me for a minute to the dog days of summer and one of its biggest sporting events. At the U.S. Open, the adrenaline of New York just gets going for some of the players. This year, Carlos Alcaraz defeated his rival, Yannick Sinner, to claim the title of men's singles champion. Irina Sabalenka won her second straight title on the women's side. Bloomberg's Amanda Mull was there, but not just for tennis. It's a tennis competition, but it's also in some instances an Olympics of luxury branding.

0:48Amanda has been following a different kind of match, the one between luxury credit cards. For years, American Express and Chase have been vying to be the preferred premium credit card of America's richest consumers. And at the U.S. Open, they were pulling out all the stops. What both of the banks had done was sort of set up a series of spaces, lounges, terraces, places that you could grab refreshments, get a free hair tie and some free sunscreen. And you were able to access different versions of those spaces or different types of them, depending on your status as a cardholder or like what kind of card you held within the company's selection.

1:31These card companies aren't just duking it out on the sidelines of tennis matches. From exclusive Fashion Week events to bespoke airport lounges and partnerships with brands like Lululemon, Chase, Amex and a handful of competitors are doing whatever it takes to convince a specific group of high earners to do their swiping with them. If you look at the highest earning 10 percent of households, which is roughly households above$250 ,000 a year, they do fully half of all of the consumer spending in the United States. It's a third of American GDP. It is an enormous amount of day-to-day spending. These wealthy Americans have helped make premium credit cards the fastest-growing sector of the card industry.

2:15And they're paying between$400 and nearly$900 a year in annual fees to the credit card companies that offer them. So what's the endgame here? And who's winning? I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, premium credit cards hit the court. How the leading credit card companies are pushing for an advantage point with America's top spenders. Game. Set. Match.

2:50It tracks that the people spending the most money in the American economy are the people with the most money. It's always been the case that the richest people do a disproportionate amount of consumer spending because the more discretionary income you have above and beyond your basic needs, the more opportunities you have to do discretionary spending. But Bloomberg Businessweek reporter Amanda Mull says over the past few decades, the gap between the consumer spending of the wealthiest 10 percent of Americans and the rest of the country has been widening. A big reason that consumer spending has gotten more disproportionate is that as wages have stagnated and more recently as like the job market has sort of frozen, so it's really hard to leave or find a new job.

3:34What has gone up in value is assets. If you own stocks, if you own real estate, if you own anything that appreciates, you are probably feeling a lot more flush than someone who makes like a similar amount of money to you perhaps, but does not have those investments. So the people who own assets, they are sort of running away with the economy at this point. And as those top earners become an increasingly powerful spending block, credit card companies have been eager to woo them. You want to be in business with this particular customer because the main way that credit cards make money, that they generate revenue, is through interchange fees.

4:14Every time a customer swipes, the credit card company pockets a percentage of the total transaction. The higher the transaction, the more companies make. So putting a lot of effort and capital and time and energy into figuring out what those people want, where they are, and how they can be motivated is really, really huge for brands. One of the ways credit card companies have targeted those big swipers is by offering a product they pitch as a premium credit card, which offers extra perks in exchange for an annual fee. You saw really the first flurry of activity in premium rewards credit cards in the 1980s.

4:55That is, you know, the yuppie era, the greed is good era, the finance guys in Armani suits. This is a time when like this sort of consumer culture of the U.S. was beginning to shift to cater itself more to like very high earners. And in 1984, Amex came out with its first platinum card. It was at the time an invite only credit card. So it was for a very small percentage of very high earners that already had relationships with Amex. But over time, as credit cards became an even more dominant form of payment within the U.S., as they became more widely accepted and safer to use, American Express and its competitors all sort of expanded those programs.

5:36The Platinum card eventually became available for open application. It's still a little hard to get. You have to be high income and have very good credit. Those programs began to be more widely pitched as this disparity in discretionary spending grew. So the number of elite spenders grew and the way that credit card companies were marketing their premium offerings expanded as well. Yes. For a long time, American Express dominated the premium market. American Express has been set up to service the needs of high earners since like the 1890s. when they came out with their first traveler's checks.

6:16Other banks had other premium credit cards, especially when banks started to partner with airlines to help administer frequent flyer rewards programs. But it was always sort of an article of faith that this was like sort of American Express's market. And then in the mid-2010s, American Express went through some changes with its business. It lost its partnership with Costco, which accounted for fully like one in 10 of American Express cards in circulation in the United States at the time. Costco executives felt Amex's transaction fees were too high. So when their credit card agreement was up for negotiation in 2015, the two companies parted ways.

6:56Visa gave them a better deal on interchange fees. So they switched to Visa. And that, you know, created some turmoil within Amex. And they decided that they were going to double down and go all in on really pursuing these affluent to wealthy customers that have always been their sort of bread and butter. But before they could get some new upgrades out to their platinum card in fall of 2016, Chase came to market with the Chase Sapphire Reserve. At the time, it had a$450 fee that has since been increased several times. It is now$795. And Chase really saw Amex as vulnerable at that time. They looked at this company that was, you know, servicing a really desirable segment of the public and went, maybe we can do that better if we have the right combination of amenities and fees and perks and things that we can offer.

7:48And Chase is part of JPMorgan Chase. It is a huge company that has like the financial resources to do all kinds of things that like virtually no other financial institution in the U.S. has the resources to do. The rollout costs$200 to$300 million. Chase was ready to play. They said, well, why can't we beat Amex at its own game? And then Amex, of course, fired back. In 2017, Amex tacked on a$200 a year Uber credit, an invitation to a pop-up restaurant in the Hamptons, and five times points for flights and hotel stays. And these cards get a refresh every three to five years usually. So we've been in sort of a cycle of refreshing and competition ever since.

8:35And that brings us to today when Amex and Chase are still kind of jockeying for the top billing in the premium credit card space. Walk me through the pitch that these two credit card companies are making. How are they getting people to sign up for the Chase Platinum Reserve and not the other guy? Well, it's funny. Like, I do think it gets confusing. Like, I mean, you said it yourself, the Chase Platinum Reserve, like it's the Amex is the platinum and it's the Chase Sapphire Reserve. Okay, got it. Chase Sapphire Reserve, Amex Platinum card. Credit card branding is very confusing because like the fundamental problem of the credit card space is that like the day-to-day process of using a credit card is exactly the same no matter what card you're using.

9:19You take it out of your wallet, you tap it, you swipe it. So credit card issuers need you to use their card versus all of the other ones in your wallet. And these companies, by their very nature, have a lot of consumer data so they can see what their high-income clients do with their money and, like, what they prefer, the kinds of brands they shop from, their leisure activities. So they end up offering a lot of similar perks. Airport lounges, free upgrades to nicer seats on an airplane, first dibs on restaurant reservations, retail or brand purchase credits. So spend money at Lululemon and quarterly you get a$75 refund.

9:58All these different cards, all these similar perks. How is someone supposed to choose what card to get? It's like very difficult because like not only do American Express and Chase have their own sort of like mainline premium cards, but they both co-brand cards as every card company does with hotel chains, with airlines like Chase has its United cards, Amex has its Delta cards. It sort of depends on like like what your actual spending habits are and if you can sort of evaluate them dispassionately. Charlotte Zoller is one cardholder who's trying to make that calculus for herself right now. I feel like I'm getting my money's worth.

10:37And at the same time, I feel like I am working to make that happen. I'm now tracking to make sure I use all of my perks. Charlotte first signed up for an Amex Platinum card in 2021. She was starting to make more money and she wanted to go out to eat at nicer restaurants, travel better. But last year, Charlotte decided to give the Chase Sapphire Reserve a try. Amex's lounges have gone downhill significantly. The perks of the hotel program have kept me there, but the points also don't stack up as well as Chase's. Charlotte is now weighing whether she should keep paying for both cards, which cost her more than$1 ,200 a year combined, or commit to just one.

11:28It makes me feel a little bit silly, honestly, paying for both. I've gotten into a frustrating place because I like how the Venn diagram of perks shifts into co-centric circles when I have both cards. Charlotte's dilemma speaks to a bigger issue for these credit card companies. As more of them offer premium cards with similar perks, it's getting harder and more expensive to differentiate themselves. That's after the break.

12:05American Express and Chase have slightly different motives when it comes to recruiting high-income customers. Amex's business is based around finding and keeping premium cardholders, and the company says it has a 98 % retention rate. Chase wants those same premium cardholders, but it's also hoping to convert them into J.P. Morgan banking clients. And nearly a decade after these credit card companies started competing, Businessweek reporter Amanda Mull has been trying to figure out whether their strategies have been paying off. Chase confirmed to me that, like, the Sapphire Reserve is profitable unto itself, profitable even if cardholders don't go into any of their other financial services offerings, even if they don't take out a mortgage with Chase, even if they don't do wealth management with Chase.

12:52And, like, in general, Amex really only offers premium cards. They don't really do much of a business in, you know, lower credit quality, lower income clients. But like they're a very profitable company. There is a real business case for spending all of this money and all of this time and investing all of this capital in attracting these consumers because they do such a disproportionate amount of spending in the U.S. Like it nets out. The ROI is good. But what works in the U.S. hasn't translated to other parts of the world. Part of what makes the math on this work for card issuers is that in the United States, there is not any cap on interchange fees.

13:29You don't get a lot of these cards in Europe because Europe regulates how large of a percentage of each transaction that card companies can take. America caps that for debit cards, but not for credit cards. So the premium cards, even within the same issuer, they command a higher interchange fee. it can get up to like 3 % to 5 % depending on what card you're looking at and what type of transaction it is and the size. So it's these transactions that are sort of underwriting these benefits. And if you cap them, as most other markets do, like the math doesn't work out as well. MX recently announced that its platinum card's annual fee would go up$200 a year to$895.

14:12And the Chase Sapphire reserves fee just went up$245 a year to$795. Part of the reason for the fee hikes, Amanda says, is this fear that the U.S. could begin capping fees. I think banks have been nervous for years that there is going to be regulatory action on interchange fees in the U.S. And there has been a lot of threat that regulatory bodies are going to sort of like come in and reduce the amount that these cards can charge. The odds of that happening during like a Trump administration are, I think, somewhat muted. But like banks look at this as sort of a long term project. That's really interesting.

14:51So if they have to charge less per transaction at a grocery store or a corner store, they're going to make up that money by charging these elite spenders more each year. That's part of it, definitely, is the anticipation that you need to train cardholders to expect a high fee because you may need one in order to make the card business solvent in the future at some point. But then there's also, I think, a desire to like thin the herd a little bit. I heard this from a few people within the industry. Banks who are providing all these perks want you to pick. They don't want you to have both cards and sort of like gain max value out of those cards and then move on to the next card and extract value from that.

15:31They want you to say, OK, if it's going to cost me$1 ,000, I'm just going to get the platinum or the sapphire reserve and be done with it because this is it's too much. It's too annoying. I'm wondering whether these cards actually make economic sense for most consumers. Are they getting their money's worth out of these perks if you're paying basically$1 ,000 a year for a credit card? Well, I think for most consumers, they don't make sense. And I think that the banks themselves would tell you that this is like not a card for everybody. They want like a particular psychograph of consumer to sign up for these cards.

16:05For these particular kinds of customers, paying for a premium can be worth it, despite the cost or because of it. These cards are absolutely status symbols. There's a reason that they're all made of metal now. They have a nice like plunk when you put them down on a table in a restaurant. It has always been true that charging more for something, if it's the right type of something, if you've communicated about it correctly to your customer, Charging more for something can make it itself more valuable. The U.S. Open sponsorship, the airport lounges, partnerships with like luxury hotels and getting you into first class in an airplane, that is all designed not just to woo customers, but to also burnish the reputation of these cards as luxury goods themselves.

16:50So in the premium credit card matchup, who's winning? Amanda says figuring that out is not as straightforward as tallying up points. Neither company discloses figures on how many premium cardholders they've enrolled. There has been some math done out there that among American Express's Delta cards, it seems like there is about six to eight million holders of those cards. If, you know, the co-branded card is bringing in that many people, then across the lineup there is the mainline platinum, And then at Chase, there is the preferred business. And American Express also does a platinum business. Like, it is like millions and millions of people.

17:33This summer, when Chase launched their refresh of the Chase Sapphire Reserve card, there was like a real sense of like, oh, like Chase is very, very serious. Chase is maybe like making a real dent in this. And Chase told me that they believe that they are winning this war for America's wealthy consumers. But the Amex launch in September that came a few months after the Chase relaunch has been received like really, really well. They have such a long history with this. They just have a real head start in a lot of the categories that make a real difference to this type of shopper. So Chase is investing an enormous amount of capital in catching up.

18:12But I think they're still catching up. They're both bringing their metal credit cards to the knife side. We'll see how it ends. Thanks so much, Amanda. Of course. Thank you.

18:51To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.