The perfect credit card looks different for everyone. For me, it would have unlimited airport lounge access, 5 percent travel rewards on every purchase and a $300 annual travel credit along with some extra perks and benefits to sweeten the deal. Oh, and no annual fee. Any credit card expert would tell you my perfect card is delusional. But a girl can dream, right?
So what’s standing in the way of my (or your!) perfect credit card becoming a reality? In early May, I attended CardCon, a conference for credit card experts and market professionals, and learned from several credit industry insiders why it doesn’t exist (and probably never will) — and what you can do instead.
Credit card rewards programs are often loss-leaders
Much like the $5 Costco rotisserie chicken that hasn’t changed its price in 25 years, rewards credit cards can be a loss-leader for many card issuers. That means those enticing rewards get people in the door and even spark loyalty, but it’s not a moneymaker for many card issuers.
During a CardCon panel on building a profitable rewards program, Suzan Chaffin, executive vice president of solutions at LoanPro, and Ryan Duitch, CEO of Arro, shed light on how some card companies actually lose money on people who don’t carry a balance on their rewards cards.
Credit card companies make money on the fees they charge cardholders, such as annual fees and balance transfer fees, interest charges, and transaction or interchange fees.
Interchange (or swipe fees) are the fees required to accept, authorize and process your payment when you make a purchase. They are a major source of revenue for card issuers with swipe fees on all credit cards totaling $148.5 billion in 2024.
But rewards cards can eat into that interchange fee revenue. That’s because card companies often work with third-parties or partners to manage their reward programs. In exchange for building out those rewards, the partners receive that card issuer’s interchange revenue as payment.
“A lot of reward programs are actually loss-leaders for a lot of businesses. For anyone that doesn’t know — you give all your interchange away,” explains Duitch.
As an issuer, if you’re giving up your interchange fee revenue, you then have to rely more heavily on other means, like interest charges, to bring in revenue. The problem, according to Duitch, is that prolific rewards card users often don’t carry balances.
Many people don’t revolve. They pay it off. You give all of your revenue away in interchange, and a lot of [card companies] lose a lot of money.
— Ryan Duitch
CEO of Arro
Given the expense and potential lack of revenue when it comes to rewards cards, issuers have to walk a fine line when it comes to designing their rewards credit card products.
Credit card companies are cautious
If your ideal credit card hasn’t been created yet, you might be waiting a while. David Gold of Gold Peak Advisors previously worked for American Express and Chase in senior executive roles for over 20 years, and he had a hand in developing some of the top credit card reward programs.
During his tenure, he learned the risk-averse corporate banking environment isn’t always the most conducive to innovation.
Large corporate cultures like banks tend to be conservative and bureaucratic. Bureaucracy and conservatism tend to stifle innovation.
— David Gold, Founder and managing partner, Gold Peak Advisors
Gold explains that there are regulatory concerns to abide by as well and there aren’t necessarily disruptors in this industry.
Rather than recreate the wheel, card issuers may lean toward proven rewards structures instead of taking on the monetary risk of creating something new and watching it flop. That doesn’t mean innovation doesn’t happen at all in the credit card space — it’s just more incremental, according to Gold.
A delicate balancing act
It’s no surprise that credit card companies are in it to make money. They attract new customers with enticing perks, rewards and benefits that are marketable; however there’s a complex balancing act happening behind the scenes. Price, value, brand affiliation, fees, interest rates and partnerships all meld into this “pool of economics” between the card issuer and the cardholder.
“From the neutral perspective, a perfect card would find the right balance of all those pieces for both the issuer and the consumer,” Gold explains.
If the scales tip too heavily in favor of the consumer or the issuer, unfavorable consequences occur.
“If the issuer gives away too much value for the customer, they’re going to devalue [the credit card] and that’s not good for the customer,” Gold says. “When the customer doesn’t get enough value, they’re not going to use that card. They go and get some other card.”
It’s a pattern you’ve likely noticed in many popular credit cards where the rewards suddenly drop in value, the annual fee goes up or certain benefits and statement credits get snatched away. Suddenly, what may have been a great card loses its appeal.
Another factor is cardholders who exploit or gamify rewards programs. “Any extra value you can get will go away if people find it and then abuse it. So that stuff never lasts,” Gold says.
Finding the perfect card for you
If your dreams of a perfect card look anything like mine, Gold’s next insight might be disappointing.
“From a consumer perspective, sure you’d like your card to have transferable currency to everybody at a really good transfer rate and a low interest rate and no fee, right? But that’s not practical,” Gold says.
But that doesn’t mean you can’t find a card (or two) that help you get close to that ideal. Gold shared a few suggestions for finding the card(s) best suited for your lifestyle:
- Understand what your priorities are. Choose the type of card rewards that make sense for you. Would you prefer to earn travel rewards or cash back? Do you need simplicity or are you more flexible?
- Decide if you want a card with an annual fee. Some of the best travel cards on the market will have an annual fee, but it may not be worth it for everyone.
- Evaluate how much you could earn from welcome offers. The value you could get upfront may outweigh any annual fee on the card, at least for the first year. Run the numbers to see if it still makes sense to keep the card after the first year.
- Avoid overly complicated cards. Your rewards are only valuable to you if you actually use them. If redemption or transferring rewards to partners is too complicated, it might not be the ideal card for you.
The bottom line
The definition of the perfect credit card changes based on what side you’re on. For a credit card company, the perfect credit card looks like one that’s profitable and doesn’t give away too much value while having a healthy ratio of cardholders who carry a balance to those who pay their full balance each month, all of whom spend on the card regularly.
For consumers, it’s about what rewards, benefits and value we can get out of the card. Ultimately, the perfect card depends on what’s important to you.
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