By Ray Birch
GAINESVILLE, Fla.—Travel-related credit card rewards just keep getting more attractive, and credit unions need to find ways to respond or risk losing card spend, experts say.
But it’s not going to be a smooth flight, says one analyst, who notes travel rewards are a tough payments space for the nation’s financial cooperatives.
“Credit unions absolutely have to pay attention to what is happening with travel rewards,” said CardRates.com’s Bill Hardekopf. “This space is really offering some attractive deals, and these rewards could keep growing.”
Bill Hardekopf
As CUToday.info reported, Capital One has introduced a new premium travel credit card, the Venture X, with has an annual fee of $395. Its perks include $300 in annual statement credits for bookings made through the newly relaunched Capital One Travel portal, 10,000 bonus miles each year starting with the second year cardholders have the card, up to $100 in credits for a Global Entry or TSA PreCheck membership and complimentary cell phone insurance.
In addition, the Venture X card earns two miles for every dollar spent on anything, along with a total of five miles per dollar on flights booked through Capital One Travel, and 10 miles per dollar
New cardholders will be able to earn 100,000 bonus miles after spending $10,000 on purchases in the first six months after opening the account. And for a limited time, as part of the sign-up bonus, cardholders will receive up to $200 in statement credits for vacation rentals like Airbnb and VRBO.
Greater ‘Appetite’
“Consumers are traveling more and the major issuers know that,” said Hardekopf. “Credit unions have to pay attention to what is happening. The country has opened up and people are spending more and they are traveling more after being cooped up for a year plus. The big credit card issuers are seeing there is an appetite for people to spend money and go places. The credit card issuers are trying to take advantage of that and are offering some fairly attractive perks to lure people to apply for their cards.”
Protecting a portion of their members’ card spend, however, is going to be like getting through a TSA line during the holidays, the experts say. Hardekopf recommended credit unions look to add additions to their current cards, as opposed to introducing a new card that returns big travel rewards.
“To introduce a new card it takes quite a bit of effort and planning from a corporate standpoint,” he said. “It’s just not easy to introduce a brand new travel rewards card, or really any kind of new credit card. It takes a lot of planning. What I see as a greater possibility for credit unions is they begin to issue new temporary travel rewards on existing cards. Credit unions may have to do this to remain competitive.”
Not Much Can Be Done
Tim Kolk
Tim Kolk, principal at TRK Advisors, Peterborough, N.H., contends there is not much credit unions can do to battle the ultra-high travel rewards offered by the big players.
“There is no evidence that a credit union can succeed in this product category, unless they are willing to accept the product as a loss leader for strategic purposes,” Kolk said. “There are many challenges for credit unions in this category: processing and servicing systems are not capable of the functionality required, the number of consumers actually willing to pay these types of annual fees is quite small and quickly becomes irrelevant in a credit union’s overall membership base, the special perks offered often require direct negotiations with some of the third parties involved, and the skills required to manage these segments for profitability are hard to come by.”
Kolk added the skills needed to run a travel rewards program lie largely with the major card issuers.
“These skills include a person who understands financial and profitability modeling for credit card products, analytic member segmentation to target offers to specific segments who would find such a card attractive, and credit card lifecycle management to keep accounts active and interested as they age,” Kolk explained. “They also need to be able to work the internal organization to keep the required resources coming throughout the year.”
Kolk noted the large card issuers, compared to credit unions, have a much bigger base of customers who would be attracted to high-end travel rewards.
A Longer-Term Look
While Hardekopf believes travel rewards should continue to grow at least in the near term, economic issues could affect how long these perks last.
“There's a lot going on in the economy right now, and this inflation is real and it's taking a bite a lot of people's pocketbook,” said Hardekopf. “I don't know what the long-term effect of this will, and that might curtail traveling. I don't have a crystal ball when it comes to the economy, but I do think if the if this horrible inflation continues I do think the pendulum might swing back the other way and people won’t travel as much.”