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Earlier this week, American Express announced the launch of Cobalt, a new card product for the Canadian market designed to target a younger set of consumers.
The card costs users $10 a month and offers 5X rewards on food and beverage expenses, double rewards on travel, and a startup bonus for hitting certain spending targets within the first three months and year.
Canada could be a strong growth target for Amex at a time when it’s looking to reaccelerate gains. Amex officially sold its $80 billion US Costco portfolio last year, which hurt its performance, causing the firm to pursue new growth opportunities to recover.
International markets, which comprised just 44% of Amex billings in 2016, could be one such opportunity. And Canada, which is facing a similar, though less dire situation following Amex’s sale of its Costco portfolio in 2014, could be a ripe opportunity. Ninety-two percentof Canadian adults have at least one credit card, but Amex only holds an estimated 5% of the market. And billings fell annually last year, likely as a result of losses from the Costco sale. Finding ways to attract new Canadian consumers could be a way to reinvigorate the market and replace the lost consumers and spend from Costco.
And Cobalt’s laser-focus on millennials could be the ticket to cornering a lucrative demographic.
- Cobalt is likely to appeal to millennials’ spending habits and need for convenience. Cobalt is mobile-oriented and allows customers to apply online or via app — something Amex has had success with in the past — as well as redeem rewards and manage spending online. That could resonate with a younger, digital-savvy demographic, especially since the rewards multipliers align with millennial spending priorities like travel and dining. Because Cobalt makes it simple for users to sign up, and then incentivizes them to use Amex for spending they’re already doing, applications and engagement could rise, giving the firm a volume boost in Canada.
- And that could give Amex a path into a key market. The firm, which is notorious for having a lucrative, highbrow customer base, has been working to push into new demographics. Cobalt could be a ticket to attracting younger consumers — a group that’s been resistant to its offerings in the past — which could replace some of the firm’s losses and reinvigorate growth in Canada. Additionally, if Cobalt takes off, it could serve as a blueprint for similar, millennial-focused products that Amex could introduce in other markets, which in turn could help improve its positioning in the demographic.
Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically.
But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.
Ayoub Aouad, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed credit card rewards explainer that:
- Identifies the costs associated with offering rewards for issuers and how they have increased over time.
- Details why credit card issuers continue offering high-valued rewards.
- Analyzes how the industry has evolved since 2011
- Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs.
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