The Rise of Premium Credit Cards
In March, Robinhood introduced its Platinum credit card, which offers a range of enticing perks. These include generous travel rewards, $250 in annual DoorDash credits, and a free membership to Amazon One Medical. The card, which comes with an annual fee of $695, is named as both an homage and a flex: it echoes the card brand made famous by American Express, though Robinhood highlights that its version is the only one to be “plated in 99.9% pure platinum.”
This offering is part of a growing trend in the world of premium credit cards. These cards are no longer just payment tools but are marketed as lifestyle accessories. Members enjoy access to concerts, upscale gym memberships, and the opportunity to accumulate free goodies from retailers like Lululemon and Apple.
For those who manage their spending well, high-fee cards can be a good value. They offer a combination of perks plus rewards for spending that can be cashed in for various travel offerings. Additionally, all of this comes tax-free due to a legal quirk that treats credit card swag as “redemptions” rather than income.
However, not everyone is happy with these developments. In recent months, Congress and the White House have renewed efforts to pass the Credit Card Competition Act (CCCA), which could make it harder for card issuers to offer such perks. This raises questions about whether the era of lavish rewards is coming to an end.
Jamie Dimon’s Bet Pays Off
“I wish it was a $400 million loss,” JPMorgan Chase CEO Jamie Dimon famously declared in 2017. He was responding to investor complaints over a $200 million earnings charge the bank had incurred from huge sign-up bonuses tied to its Chase Sapphire Reserve card. Dimon’s comments reflected a bet that the new premium card would eventually become a big moneymaker.
The calculation proved correct: Today, the card is incredibly popular and has helped the bank attract a generation of premium customers to its other services. This is one of the main reasons banks issue these lifestyle cards. However, JPMorgan has gradually raised its annual fee from $450 to $795, while reducing the redemption value of certain rewards points. American Express, meanwhile, has increased the annual fee for its flagship Platinum card to $895. These changes have led some consumers to question whether the potential to capture rewards is worth the upfront cost.
Moshe Orenbuch, a managing director at TD Securities, says that JPMorgan Chase and others would argue that the card offerings are more generous than ever—they’re just distributed differently. Many top cards now provide credits—usually of $5 to $20 a month—for services like Lyft, DoorDash, and Disney+ that can stack up to thousands of dollars a year in value.
“They are trying to create an ecosystem,” notes Sanjay Sakhrani, a card industry expert at KBW. “Ultimately they want to make this not having a card but having an experience.” For some of the card issuers’ merchant partners, tie-ups with credit issuers translate into big money. Orenbuch notes that Delta Air Lines alone has collected as much as $10 billion from Amex in recent years for supplying seats on its planes to rewards customers.
New Challengers Enter the Market
Chase’s and Amex’s premium cards have been doing brisk business, prompting new challengers to enter the category. In addition to Robinhood’s Platinum card, there is Citi’s $695-per-year Strata Elite, whose debut last year was marred by an application-process bungle that saw the bank freeze thousands of accounts—but which has proved popular nonetheless.
The surge in usage, however, has come with growing pains—most notably at airport lounges. At venues like Amex’s Centurion Lounge and Chase’s Sapphire Lounge, cardholders can enjoy plush seats, chef-made nibbles, and free Chardonnay. But as the cards get more popular, road warriors are increasingly encountering crowds, long queues, and wait times.
The Downsides of Fat Rewards
The glamorous branding of premium cards can also lead some consumers to make foolish mistakes by running up high-interest credit card debt. Sakhrani notes that some premium card customers quickly find themselves carrying monthly balances with interest rates of over 20%—an obligation that can quickly dwarf the value of any rewards they earn.
“Consumer credit is not intuitive. Plenty of people who are otherwise smart can overestimate their own ability to manage credit cards,” says Beverly Harzog, a former CPA and personal finance author who has written about her own experience with card debt. She notes that while some are assiduous about amassing a given card’s full rewards value, many will come to the very reasonable conclusion they can’t risk the costs. In these cases, she suggests people choose a slightly less premium card like the Capital One Venture Rewards card, which can still offer valuable perks but for an annual fee closer to $100. The frugal-minded, meanwhile, may prefer a no-fee, cash-back card like the Citi Double Cash card or the Apple Card.
Merchants, meanwhile, are frustrated by one feature of premium cards: They force businesses to pay higher swipe fees compared with plain-vanilla ones. The CCCA, backed by many of these businesses, would lower the cost of these transactions. President Trump expressed support for the bill early this year, calling for an end to the “out of control Swipe Fee ripoff” and a temporary cap of 10% on monthly interest.
If any of these proposals come to pass, analysts say, banks would be forced to dramatically scale back rewards and turn their “lifestyle” offerings back into ho-hum instruments of credit. For now, though, that appears unlikely. The powerful bank lobby has a growing list of allies—including airlines and hotel chains—that will likely push to preserve the status quo. The good times should continue to roll, letting disciplined consumers pad their incomes with free stuff for the foreseeable future.
