- Summary: JP Morgan (JPM) plans to announce a 'new' kind of credit card today. The 'Freedom' card allows customers to switch back and forth between reward currencies -- either cash or points redeemable -- for a wide variety of goods and services, and will also dole out a hefty triple reward -- either 3% in cash or triple points -- for purchases at certain merchants, including Dunkin Donuts and 7-Eleven. The card doesn't carry an annual fee and gives customers an assortment of other benefits for using the card for small purchases. The more flexible and exorbitant rewards are indicative of a growing trend among credit issuers to offer sweeter and sweeter deals in order to maintain customer loyalty while hopefully luring new card members. Today, more than 60% of all credit cards issued in the U.S. are tied to a rewards program, according to industry estimates. At the same time, however, the industry's double-digit growth rate of the 1990s has slowed to single digits, forcing the nation's biggest financial institutions to add more costly perks. "For issuers, rewards are table stakes just in order to play the game," says Robert Selander, chief executive of MasterCard Inc. (MA). Increasingly, credit-card companies are drilling deeper into their customers' spending patterns to figure out which rewards are most likely to resonate. Visa created a program last year that mines data from 65 million card holder accounts allowing it to customize offers directly to the customer's need. One result has been that merchants are becoming more involved in credit-card rewards programs, and increasingly are chipping in to fund rewards programs, meaning a reduction in their own profits.
- Comment on related stocks/ETFs: The WSJ recently ran an article on a new MasterCard offering targeting wealthy households, another indication of the many ways credit issuers are marketing their services for the 21st century. Jim Cramer continues to maintain his bullish stance on MasterCard and American Express.
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