Ultra Premium Cards in 2015: Hefty fees and how they can be justified

Over the past few years, mass market credit cards have become loaded with more and more features and benefits, ranging from cash incentives to free FICO scores. The credit card options available to consumers in 2015 will, undoubtedly, be much better than they were a decade ago. Furthermore, most cards are still free – only around 1 in 5 cards offered to consumers via direct mail in Q3 2014 carried an annual fee, according to Mintel Comperemedia.

Cards with a fee are also much better than they have been in the past as issuers add lounge passes, priority boarding and other benefits. For these “premium” cards the improvements have come at a price. The average annual fee, for cards with a fee, was $135.58 in Q3 2014, up from $100.53, with the majority now charging $95 per year, according to Mintel Comperemedia.

This “premiumization” of credit cards has set off a chain reaction that is also impacting ultra-premium cards (defined, for this blog post, as cards with an annual fee of $300 or more), long dominated by the $450, benefit-rich, American Express Platinum Card. Ultra-premium cards are finding it more and more difficult to justify their hefty annual fees given the shift towards premiumization.

Here are some trends that will impact ultra-premium cards in 2015.

More options:

Most issuers have adopted a tiered approach to cater to consumers at different price points. As competition heats up there is likely to be further segmentation of the ultra-premium space as well as competition lower down the value chain. For example, Chase has been promoting its Ritz-Carlton Rewards Credit Card from J.P. Morgan ($450 annual fee) while Wells Fargo launched its Propel World American Express Card which has an annual fee of $175.

Better incentives:

Sign on incentives continue to improve each year and 50,000 miles as a sign-on bonus has become the norm for premium cards. To promote its Executive/AAdvantage World Elite MasterCard ($450 annual fee) Citi initially offered new cardholders 100,000 miles. In Q3 American Express was offering new cardmembers 100,000 points.

Ongoing lounge wars:

The key justification for a high annual fee is lounge access and, with airline consolidation, the battle for lounge access has become more intense. Aggressive marketing tactics that point out the differences in travel benefits will continue in 2015 as issuers attempt to gain a competitive advantage.

New benefits:

Issuers will look to new benefits to justify high annual fees. In 2014 American Express, no longer able to offer Admirals Club lounge access to Platinum cardmembers, added access to Boingo Wi-Fi hotspots as well as an $85 application fee statement credit towards the TSA Pre program, with the goal to enhance the airport experience.

The premiumization of the credit card market will continue in 2015 as consumer confidence grows. Ultra-premium cards will need to justify their hefty fees and demonstrate value by offering new features and benefits and through more precise targeting.

Andrew Davidson is the Senior Vice President of Mintel Comperemedia. Andrew uses his 20 years of financial services research experience to provide insights to clients around key trends and industry marketing activity, helping companies understand and react to an ever-changing competitive environment.