topic Re: Why Chase (Freedom) Can't Compete with Discover in Credit Cards

Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 15:23:41 GMT

Whatever you think of the cards themselves, it can't be denied that Discover is having a blockbuster year. First, it dethroned 9-time customer service ratings champion American Express. And on the 4th quarter categories, Discover runs away with the prize in the competition between the 2 top dogs (Discover and Freedom) in the 5% rotating category competition. Discover has Amazon.com, department stores, clothing stores. Basically, your holiday shopping covered. Okay, last year they had all online shopping but depending on your shopping pattern one may well find clothing stores and department stores just as useful.

Chase, in the mean time, stuck the Freedom with Amazon.com... and ... umm, audible.com and ahem, diapers.com. So happy day, new parents (but you might find these diapers in whachamacall it... oh yeah, department stores) and audio-book lovers. But it's hard to hide the fact that it's very, very weak compared to Discover. Add in the double cash promo for Discover going on now, and it's a complete rout.

Why do you suppose this is? Chase is a giant in the industry, and its targeting of Amex has been quite successful. But in my opinion, it's exactly the way Chase did it that is now whipping them in the competition against Discover. This is of course all my opinion, but here's what I think is eating Chase's lunch:

Overly generous sign-up bonuses. I know this is popular around here, and Chase did this to go after Amex's business, but there's a flip side to this. Chase has been aggressive about the sign-up bonus across its cards, which of course made it the darling of lots of blogs that tell you how to "travel for free" and lots of forums. Which in turn created bonus chasers, churners who took advantage of the bonuses, but didn't put in the spend elsewhere for Chase to make money. They have to make that profit up somewhere. Best place to attack? A card that has no AF (little reason for consumers to complain as opposed to nerfing an AF card) but presents a huge earning potential. That willingness to dongle the gigantic sign-up bonus carrots, I think, eventually led to policies like the 5 new accounts in 2 years, and now this.

Discover has no lump-sum, up-front bonuses. Their double the rewards program is designed so people use their card more over a long period of time, instead. Chase could learn from this.

The UR program is popular, generous, and too easy to accumulate lots of points for. I have lost count of how many bloggers, YouTubers, and forum members have presented a combination of the Freedom and the CSP as the perfect combination for high earning potential. Use the Freedom categories for 5x points, the CSP for dining when it isn't a category for Freedom, take your pick on the cards on other spend, and voila! And the thing is, these people are right. But the UR points, transfer partners, etc. aren't free to Chase! They have to pay for it. If they are not getting enough non-cat spend (for their perspective, not the consumer's), they have 2 choices: officially nerf a UR earning card, or unofficially make it harder for people to rack up those points. It looks to me like they chose the second route by making the categories less useful. More useful categories = more 5x use (which is a loss leader), less useful categories = less so overall.

I mean, compare Amex's approach to this. Their only no-AF MR earning card, the Everyday gives you only 2x MR points on supermarkets with 1x on everything else with a small potential 20% bonus. Not to mention Amex makes more money in swipe fees than Chase.

Discover focuses on one product (primarily), making it your default card, uncomplicated rewards (cash), and providing useful categories so it's always in your wallet. Smart, and I think it's working.

Annnnywaaaay. I think I've made this long enough. Time for your input.

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 15:28:44 GMT

Their credit card division is making less and less but as long as they are making smart mortgage loans smart business loans and everyone keeps their money in the checking account.. well most of the money in the checking account if you overdraft they snatch up some nice scratch there too haha… they will still have plenty to invest. That is their main job: to make money when other people aren't.

Discover is trying to get checking going more aggressively and personal loans going I was tempted myself. They have pretty good terms Capital One is does the same and they are winning awards with consumers.

Sounds unfair but maybe they should make some new rules about people who have multiple cards? if you have a whole bunch of accounts with them you need to have a checking account with them because banks invest your deposits. Big boy investment companies work that way, the credit unions do too. it's not unheard of

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 15:30:41 GMT

The economy has gotten better so everyone is spending more that is all the more reason to aggressively seek out the slice of the pie and I haven't checked out discover's data but I'm sure it's up.

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 15:36:31 GMT

@Anonymous wrote:
Their credit card division is making less and less but as long as they are making smart mortgage loans smart business loans and everyone keeps their money in the checking account.. well most of the money in the checking account if you overdraft they snatch up some nice scratch there too haha… they will still have plenty to invest. That is their main job: to make money when other people aren't.

Oh, I'm not arguing that the credit card business making less is going to break Chase's bank (pun intended). Chase will be fine. But that doesn't mean they want to make less money on CCs or that they won't find ways to nerf if they see fit.

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 15:58:48 GMT

@Anonymous wrote:
The economy has gotten better so everyone is spending more that is all the more reason to aggressively seek out the slice of the pie and I haven't checked out discover's data but I'm sure it's up.

That's an interesting perspective, but the haydays of Chase's bonuses were when the economy was still struggling. They went after a smaller group of people who were credit qualified then, and my guess is that their bet didn't pay off or they weren't counting on as many people churning/bonus chasing. They aggressively saught out a bigger piece of a smaller pie. They also concentrated on building up the UR program while Discovered focused on cashback, a simpler to understand rewards system, providing great customer service, and making long term users.

Re: Why Chase (Freedom) Can't Compete with Discover

Callandra — Tue, 15 Sep 2015 16:04:09 GMT

I do agree that in terms of pure cashback, Discover outwins Chase Freedom by a landslide.

Don't know much about customer service since I don't have Discover and I've never called Chase for anything ever (I never call customer service). My only Chase CS experience would be in-branch and I've only ever had polite, courteous service there. If I was interested in another rotating card, I would consider Discover but at this point, I'm sort of over this rewards thing and would rather just have something simple like Quicksilver.

Re: Why Chase (Freedom) Can't Compete with Discover

Open123 — Tue, 15 Sep 2015 16:12:26 GMT

@yfan wrote:
Whatever you think of the cards themselves, it can't be denied that Discover is having a blockbuster year. First, it dethroned 9-time customer service ratings champion American Express. And on the 4th quarter categories, Discover runs away with the prize in the competition between the 2 top dogs (Discover and Freedom) in the 5% rotating category competition. Discover has Amazon.com, department stores, clothing stores. Basically, your holiday shopping covered. Okay, last year they had all online shopping but depending on your shopping pattern one may well find clothing stores and department stores just as useful.

-- Agreed. Discover is having a heck of a year! Probably their best year (CC division anyway) that I can recall. While I agree Discover's customer service is the best (aside from JPM Ritz, but not fair comparison, given the fee), Amex is likely still better when it comes to claims, warranty, and Merchant disputes. For me, the latter is what I look for more important for me than answering phones quickly, perky and perfect American accent, and saying a bunch of uplifting things to me on the phone.

Chase, in the mean time, stuck the Freedom with Amazon.com... and ... umm, audible.com and ahem, diapers.com. So happy day, new parents (but you might find these diapers in whachamacall it... oh yeah, department stores) and audio-book lovers. But it's hard to hide the fact that it's very, very weak compared to Discover. Add in the double cash promo for Discover going on now, and it's a complete rout.

-- Ah, while I'm sure the categories are important to some, they aren't to me. Of course, I know of Amazon, but only spend about $100 per year. The rest? Have no idea, and don't even care enough to search or ask anyone about them.

Why do you suppose this is? Chase is a giant in the industry, and its targeting of Amex has been quite successful. But in my opinion, it's exactly the way Chase did it that is now whipping them in the competition against Discover. This is of course all my opinion, but here's what I think is eating Chase's lunch:

Overly generous sign-up bonuses. I know this is popular around here, and Chase did this to go after Amex's business, but there's a flip side to this. Chase has been aggressive about the sign-up bonus across its cards, which of course made it the darling of lots of blogs that tell you how to "travel for free" and lots of forums. Which in turn created bonus chasers, churners who took advantage of the bonuses, but didn't put in the spend elsewhere for Chase to make money. They have to make that profit up somewhere. Best place to attack? A card that has no AF (little reason for consumers to complain as opposed to nerfing an AF card) but presents a huge earning potential. That willingness to dongle the gigantic sign-up bonus carrots, I think, eventually led to policies like the 5 new accounts in 2 years, and now this.

-- Years ago, by hiring Mr. Gordon Smith away from Amex, Chase made a strategic choice to commit considerable resources to aggressively compete for Amex's top tier "white shoe" clientelle. Of course, this would require a world class travel rewards program, very high to no caps on rewards, and significant upfrong client acquisition costs. Of course, I agree (obviously), Chase wasn't targetting the bonus chaser or perk abuser, but I suspect they accepted it as a necessary short term price to pay for coveting Amex's spendcentric cardmembers. Competition benefits consumers and should be encouraged at every turn. In my view, Amex had gone far too long without some kind of competition. Naturally, in any competitive environment, while consumers benefit with the sudden proliferation of free points (combination of price war and unprecedentd QE, zero rates, and cheap money), all the Issuers found utilizing free cash towards client acquisition as a much better option to earning zero interest and incurring a higher tax liability. I sense UR inflationary pressure is the reason why Chase has implemented the 5 in 24 restriction on their UR based cards.

Discover has no lump-sum, up-front bonuses. Their double the rewards program is designed so people use their card more over a long period of time, instead. Chase could learn from this.

-- Well, different business model. Chase, by targeting on Amex's travel rewards spenders, has basically made a strategic decision to devote less resources to their cashback offerings.

The UR program is popular, generous, and too easy to accumulate lots of points for. I have lost count of how many bloggers, YouTubers, and forum members have presented a combination of the Freedom and the CSP as the perfect combination for high earning potential. Use the Freedom categories for 5x points, the CSP for dining when it isn't a category for Freedom, take your pick on the cards on other spend, and voila! And the thing is, these people are right. But the UR points, transfer partners, etc. aren't free to Chase! They have to pay for it. If they are not getting enough non-cat spend (for their perspective, not the consumer's), they have 2 choices: officially nerf a UR earning card, or unofficially make it harder for people to rack up those points. It looks to me like they chose the second route by making the categories less useful. More useful categories = more 5x use (which is a loss leader), less useful categories = less so overall.

-- A few years ago, I recall discussing with fellow travel rewards enthusiasts on this very issue. Given the vast increase on the number of UR points issued (through bonuses, MS, churns, etc...), devaluation would be the natural result. Even if Chase didn't have an issue, their Partners most assuredly would object. In the beginning, I can recall the incredible value for redeeming at UA & Hyatt--they were breathtaking when combined with 2X 100K Ink bonuses & 5X Office store GCs! I'm only surmising, but I'd imagine both UA and Hyatt expressed these concerns to Chase. While I'm not a conspiracy theorist (I've been around the block, as they say), I suspect Chase, along with all the other Issuers, had strategically planned to devalue their points. Print currency, give it way, and just make it worth less. Perfect!

I mean, compare Amex's approach to this. Their only no-AF MR earning card, the Everyday gives you only 2x MR points on supermarkets with 1x on everything else with a small potential 20% bonus. Not to mention Amex makes more money in swipe fees than Chase.

Discover focuses on one product (primarily), making it your default card, uncomplicated rewards (cash), and providing useful categories so it's always in your wallet. Smart, and I think it's working.

Annnnywaaaay. I think I've made this long enough. Time for your input.

Also, the cost to Chase isn't as great as it may appear. They purchase these points at a very high volume and greatly reduced rates.

Re: Why Chase (Freedom) Can't Compete with Discover

CreditCuriosity — Tue, 15 Sep 2015 16:20:31 GMT

Would love to see Discover's earnings next quarter with the double cash back along with apple pay promo etc... Lets take a snap shot next year and see how they are doing. They could indeed regret how generous they were this year, only time will tell. Discover is definitely doing it right, how much it is costing them potentially no one is sure at this point other than themselves. Lets not kid yourself either Chase isn't hurting in the CC division and they aren't losing money other than the law suit they got slapped with recently for collection practices in their CC division of a sum of 150 million dollars or whatever it was along with the other fines for currency manipulation etc...Regardless Chase is doing just fine and is in no economic trouble. Just my 2 cents.

Glad for discover card holders, whether it holds this good next year is to be seen.

Re: Why Chase (Freedom) Can't Compete with Discover

Open123 — Tue, 15 Sep 2015 16:23:20 GMT

@CreditCuriousity wrote:
Glad for discover card holders, whether it holds this good next year is to be seen.

Well, unless your holding their stock, competition is great for all of us consumers! Ideally, we'd like a environment where all the CCs compete aggressively for our business, thereby allowing consumers a wide range of choices to maximize their respective value proposition.

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 16:24:24 GMT

Problem with being so well informed more and more consumers are. The credit card turning/churning secrets got out which is good for everyone who got to do it. I'm a pretty good rule follower but I would have done some ms myself if I had had the opportunity to and have the knowledge early on before everyone else. I am happy with regular sign-up bonuses and making my purchases a lot smarter fashion.

Discovers not stupid not everyone who scores the 10% back double cashback will all pay in full. it's a more aggressive gamble but you saw that discover train in June/July. some of the best disciplined people will end up carrying a balance here and there. Discover will get their money back.

Re: Why Chase (Freedom) Can't Compete with Discover

Open123 — Tue, 15 Sep 2015 16:26:18 GMT

@Anonymous wrote:
Problem with being so well informed more and more consumers are. The credit card turning/churning secrets got out which is good for everyone who got to do it.

Well, which is why we have the adage, "one who hesitates, loses."

Re: Why Chase (Freedom) Can't Compete with Discover

wacdenney — Tue, 15 Sep 2015 16:29:14 GMT

I would expect some amount of limitation on the Freedom categories due to the fact that UR points are worth so much more than 5%. It seems like you're comparing apples to oranges by comparing categories that earn cash back exclusively compared to categories that earn UR points that can be transfered to partners.

It takes a lot of qualifiers to level the playing field in order to compare the two on a purely cash back standard of measure. Does anyone actually even redeem UR points for cash back?? If Discover offered a transferable point program than you might have a point, but as it stands I think your comparison is a stretch.

Re: Why Chase (Freedom) Can't Compete with Discover

DeeBee78 — Tue, 15 Sep 2015 16:33:30 GMT

So one subpar 5x quarter and all of a sudden the Freedom card is worse than the Discover IT? That's subjective, opinionated, and your impression.

With double cashback and the Apple Pay bonus, I could easily replace everything you said about going after customers with Discover instead of Chase. What tune will you be singing when Discover starts chopping branches off of the rewards tree?

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 16:41:18 GMT

@Open123 wrote:

-- Years ago, by hiring Mr. Gordon Smith away from Amex, Chase made a strategic choice to commit considerable resources to aggressively compete for Amex's top tier "white shoe" clientelle. Of course, this would require a world class travel rewards program, very high to no caps on rewards, and significant upfrong client acquisition costs. Of course, I agree (obviously), Chase wasn't targetting the bonus chaser or perk abuser, but I suspect they accepted it as a necessary short term price to pay for coveting Amex's spendcentric cardmembers. Competition benefits consumers and should be encouraged at every turn. In my view, Amex had gone far too long without some kind of competition. Naturally, in any competitive environment, while consumers benefit with the sudden proliferation of free points (combination of price war and unprecedentd QE, zero rates, and cheap money), all the Issuers found utilizing free cash towards client acquisition as a much better option to earning zero interest and incurring a higher tax liability. I sense UR inflationary pressure is the reason why Chase has implemented the 5 in 24 restriction on their UR based cards.

Certainly, I believe Chase accepted that there would be some churners as a short term price to pay. How big a price they were willing to pay at what retention rates, though, only they can say. In my opinion, Chase may not have originally anticipated the number/severity of churning/bonus chasing correctly and decided later that the cost was too much and/or the retention/normal use rate too low.

I also agree that competition is good and should be encouraged. Amex had been without competition, for certain, and Chase is not the only one providing competition now. Citi has stepped up, and while they may not be as good with transferring points, the 1.6x bonus of TY points when booking American is pretty sweet if one has the Prestige. My point is though that Chase went a little too far with how aggressive they were going to be, and they are doing some rethinking now.

@Open123 wrote:
-- Well, different business model. Chase, by targeting on Amex's travel rewards spenders, has basically made a strategic decision to devote less resources to their cashback offerings.

Right; what I'm saying is Discover's business model is paying off. Not that Chase's isn't - in fact, I think Chase has decided that they have "arrived" and can afford to play a little more hardball with customers - but I think Chase's business model/strategy is part of the reason why the they would inevitably clip off the Freedom's wings.

@Open123 wrote:

Also, the cost to Chase isn't as great as it may appear. They purchase these points at a very high volume and greatly reduced rates.

Oh, I'm not saying that Chase is suffering some great loss. I am just saying they probably are not making as much as they want to, which is why the offerings are getting weaker. I don't think the question is whether Chase is losing money. It's whether they are making enough to hit or exceed their internal profit targets for specific divisions or evens specific products.

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 16:50:04 GMT

Don't assume that Discover won't suffer some of the same fate as Chase when it comes to users taking advantage of rewards categories. With the double cash back and now this extremely large rewards offering using Apple pay many of the same 'churners' and MSers will be doing the same to this card. When you offer 20%+ cash back the floodgates will open starting when IOS 9.0 comes out. When you have people willing to spend $600 just to buy an iPhone that they wouldn't otherwise that should tell you something.

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 16:48:30 GMT

DeeBee78, in their defense, OP made a lot of commentary about how they're doing this year, not in general--the rest was merely speculation as to what made the card weaker this year. Also, people weren't impressed with Q3 either, so that makes it a subpar half year.

Of course, I will agree that it's subjective. But it is something that people agree with, and it isn't necessarily a bad thing to discuss.

Re: Why Chase (Freedom) Can't Compete with Discover

Anonymous — Tue, 15 Sep 2015 16:48:43 GMT

In fairness to Chase competing with the Discover the double cashback promo is borderline insane. The idea that a company would essentially turn a 5% cashback bonus into a 10% cashback bonus for a year and a 1% general spend card into a 2% general spend card is unheard of. With Discover deals you might get as much as 20-25% cash back with purchases. Holding it against Chase that they can't compete with that might be a touch unfair.

For whatever reason Discover has decided to be extremely aggressive with the IT at this point and attempted to bring in a ton of new customers.

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 17:20:20 GMT

@Anonymous wrote:

Discovers not stupid not everyone who scores the 10% back double cashback will all pay in full. it's a more aggressive gamble but you saw that discover train in June/July. some of the best disciplined people will end up carrying a balance here and there. Discover will get their money back.

It's certainly an aggressive gamble, but interest paying customers probably exist just as much for Chase. Also a little math could show why, directly, the sign-up bonuses are a bigger gamble. Let's take a Freedom offer for $200 in cashback for $500 spend. That is a 40% bleed up front if taken out in cash, and maybe more if taken out in URs - since as many have pointed out here, UR points (to some) are more valuable than cash. Even at the regularly available $100 level it's a 20% bleed for Chase. Let's say for Discover you maxed out the categories every quarter. That's $75 a quarter, for $1500 in spend per quarter, double it to $150 a quarter - but this doubling will have to wait until the end of the promo period. That's the same bleed (roughly) for three times the spend, and in a much harder way: you have to spend on the changing categories, not just anywhere. Plus, Discover, by spreading the promo over a year, is more likely to build habit (not that it will work for everyone) and discourage churning/chasing (since that is most lucrative when you can do a spurt of spend in short bursts).

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 16:57:10 GMT

@DeeBee78 wrote:
So one subpar 5x quarter and all of a sudden the Freedom card is worse than the Discover IT?

No, actually in my judgment, Freedom was always worse than the Discover It.

@DeeBee78 wrote:
That's subjective, opinionated, and your impression.

Of course it is! I thought I made that amply clear too, what with mentioning multiple times that this was only my opinion and stuff!

@DeeBee78 wrote:
With double cashback and the Apple Pay bonus, I could easily replace everything you said about going after customers with Discover instead of Chase. What tune will you be singing when Discover starts chopping branches off of the rewards tree?

See my explanation above as to why it's harder to exploit spread over rewards. But I assure you, should Discover screw it up, I am not going to defend a nerf and argue that it isn't one! These are just credit cards and banks, not our puppies.

Re: Why Chase (Freedom) Can't Compete with Discover

yfan — Tue, 15 Sep 2015 17:12:08 GMT

@Callandra wrote:
I do agree that in terms of pure cashback, Discover outwins Chase Freedom by a landslide.

Don't know much about customer service since I don't have Discover and I've never called Chase for anything ever (I never call customer service). My only Chase CS experience would be in-branch and I've only ever had polite, courteous service there. If I was interested in another rotating card, I would consider Discover but at this point, I'm sort of over this rewards thing and would rather just have something simple like Quicksilver.

Well, Discover It IS a straight 2% card (plus the categories) at least for the first year. But I see your point, and I agree that flat rewards cards are often undervalued by the credit community. I think Quicksilver and Double Cash are excellent products.