In 2016, the most recent year for which there was publicly available information, the top six credit issuers spent $22.6 billion on annual rewards. With additional data showing that American Express spent $10.439 billion in 2019 and that JP Morgan Chase had $6.4 billion in rewards liabilities at the end of 2019, it seems clear that the amount for the industry as a whole would be significantly higher in 2019 than it was in 2016. Government reporting from 2019 estimated that rewards spending had increased by 84% since 2015.
Annual Spending on Rewards
- According to an analysis of rewards spending by the six largest credit issuers in the U.S. (representing 67.6% of the market), the credit card issuers more than doubled the amount spent on rewards from 2010 to 2016. The banks included in this data are American Express, Bank of America, Chase, Citibank, Capital One, and Discover.
- Although no specific dollar amounts were given, rewards costs at five large banks were up about 14% year-over-year in the 1st quarter of 2018, up almost 20% in Q2 2018, and up about 15% in Q3 2018. This data was for Bank of America, Citigroup, JPMorgan Chase, U.S. Bank and Wells Fargo.
- From Q4 2017 to Q3 2018, JPMorgan Chase’s liability for credit card rewards increased from $4.9 billion to $5.8 billion.
- American Express reports the cost of rewards in their annual reports. Using the 2017 and 2019 annual reports, we found the rewards costs for 2015-2019. The cost was $6.996 billion in 2015; $6.793 billion in 2016; $8.687 billion in 2017; $9.696 billion in 2018; and $10.439 billion in 2019. Of note, the rewards amount shown for 2017 in the 2017 report ($7.608 billion) is different from the amount shown for 2017 in the 2019 report ($8.687 billion). It is possible that they changed accounting practices in how rewards were calculated, so we are using the more recent number (from the 2019 report).
- Using the data from above, the percent increase in rewards costs for American Express from 2015 to 2019 was 49.2% [($10.439 billion–$6.996 billion)/$6.996 billion *100].
- JP Morgan Chase also reported rewards liability for 2016-2019, although we did not find the amount for 2015. The rewards’ liability at then end of 2016-2019 were as follows: $3.8 billion in 2016; $4.9 billion in 2017; $5.8 billion in 2018; and $6.4 billion in 2019. This is an increase of 68.4% [($6.4 billion – $3.8 billion)/$3.8 billion *100] in the four-year period from 2016 through 2019.
- To be clear, rewards liabilities at a given point in time are not the same as the cost of rewards for the year. So although comparing the data from the two companies may be instructive, it is not an apples to apples comparison. However, the data makes clear that both large banks had significant increases in their rewards costs/liabilities in the past few years. There is no reason to believe the data would show anything different from the other large banks, due to the high level of competition for customers in the space.
- The Bureau of Consumer Financial Protection published a report in August 2019 which reported that rewards expense increased by about 84% from 2015.
- The following chart shows the increase in spending on credit card rewards from Discover, Capital One, and American Express, from 2011 through 2017.
Credit Card Rewards Future Growth
- A study from Research and Markets reports that due to COVID, many consumers will be drawn to cards with cash rewards rather than travel or other perks. This is partially due to the weakened position of many of these partners.
- A recent article from Thrifty Traveler makes some predictions for the future of the industry including potentially lowering annual fees, tightening lending standards, removing some non-profitable cards, and a pause in large sign up bonus offers.
- Three future trends in credit card rewards highlighted in reporting by Business Insider were letting consumers choose the type of rewards they want, “bonus rewards for ecommerce”, and “bonus rewards for shopping locally.”
- A major report from the Wall Street Journal in January 2019 reported that major banks were pulling back from rewards because many consumers had learned how to game the system, and they weren’t leading to the higher returns the banks expected. However, the data from American Express and JPMorgan Chase shows that there was still significant increases from 2018 to 2019, so even if banks want to make changes, it is likely to take time.
- The Points Guy, who has been reporting on credit cards for years, reports that many issuers have implemented temporary policies around bonuses and annual fees due to COVID, but it isn’t clear if these will stay in place long term as the country recovers from COVID.
- Some specific changes that credit card issuers have made include changing spending bonus categories, improving points redemption, adjusting how annual credits can be used, and adding benefits to retain customers.
- Although it is not clear what the long term impacts from COVID will be, Discover announced in July that it was making permanent changes to its travel card that offers customers more flexibility in how to redeem rewards. It is possible this could start a trend in the industry.
While our research allowed us to find relevant data on the growth of the credit cards rewards market over the past few years, we were not as successful uncovering data on the market size or future growth rate for the industry.
We started by looking for market research reports on the credit cards rewards industry as they usually provide some useful data even when the majority of the report is paywalled. The only report found that focused on the credit cards rewards industry was from Mintel, and the summary did not share any data on the size of the market or CAGR.
We also examined data from reputable financial sites, data consolidation sites, and reputable media sites such as Business Insider, Statista, ValuePenguin, and Pymnts.com. While this allowed us to find much of the data above on future trends, the impact of COVID, and spending data for past years, there was no publicly available data on the market size or future predicted growth.