Put yourself in the shoes of a credit card issuer. First, you want to attract rewards credit card users, who tend to be big spenders with great credit. But to hook these big fish, you need some great bait. When it comes to airline and hotel rewards, the lures are usually outsourced to a third party, but with cash-back credit cards, you need to offer the highest rate of return possible and still make a profit.
So in response to this challenge, banks may be making cash-back rewards credit cards more complex so that they can offer rewards — in order to seize a piece of the market — without being so generous that they lose money. For example, some cash-back credit cards have offered bonus levels of cash back in categories that change each quarter, while others feature rewards that only pay out annually, requiring cardholders to have patience.
Perhaps the tide is about to turn. Capital One issued its new Quicksilver card Wednesday to replace its Capital One Cash card. The Cash card had offered 1% cash back each month, and another 0.5% back once a year. The new Quicksilver card offers a flat 1.5% cash back on all purchases, every month.
“When we talk with consumers, we hear over and over how dissatisfied they are with the complexities and catches of most cash rewards cards,” says Mike Wassmer, Executive Vice President of US Card at Capital One. “What we’ve found is that people want a card that offers rich cash back rewards without having to keep up with complicated categories and other restrictions.”
Although Capital One’s Quicksilver may offer a simpler way to earn rewards, this new product could also signal some other trends in cash-back credit cards. For instance:
Higher Rates of Return with No Annual Fee
Right now, many of the top cash-back cards have an annual fee, but only return 1% cash back on most purchases, outside of bonus categories. Quicksilver sets a new standard at 1.5% cash back on all purchases with no annual fee. Cardholders who are only earning just 1% cash back might reconsider the reward cards they use.
Cards with Different Fees for Different Credit Profiles
Capital One currently offers its Venture Rewards card and its VentureOne card. The products differ in the amount of rewards offered and the annual fee. However, the Quicksilver card is offered with no annual fee to those with “good” or “excellent” credit. At the same time, Capital One is also offering its nearly identical QuicksilverOne card with a $39 annual fee to those with “average” credit. As far as I know, these are the only cards currently being offered in this way.
Additionally, “If someone gets declined for Quicksilver, they will not be automatically considered for QuicksilverOne,” says Sukhi Sahni, spokesperson for Capital One. “If they are declined for Quicksilver, they can apply for the QuickSilverOne card.”
New Cards Cannibalizing Older Ones
One of the side effects of offering a new and improved product is that it can make existing products obsolete. Capital One seems to recognize this by withdrawing its Cash card, but customers may realize that some of its other products are now outdated as well. For example, Capital One continues to offer its VentureOne card, which has no annual fee and returns just 1.25% in value in the form of miles that can be used for travel rewards. Compare that to the new Quicksilver product that returns 1.5% cash back with no annual fee… well, there’s really no comparison.