Barclay’s Changed Are Not Good
It recently leaked out that Barclay’s had decided to make significant changes to their Arrival cards. In a conference call (which I wasn’t a part of) they apparently called the changes “enhancements”. Not only were the changes quite the opposite, but they were a terrible business decision for the company.
I am writing this from an outsider’s perspective. I don’t know the actual financial numbers for the Arrival products, but my guess is that they were unprofitable or simply not profitable enough. When products aren’t performing the way they want or need to be, then changes have to be made. It is the nature of those changes that separates a success story from a failure.
The Changes
Before going any further, lets look at the changes coming to the Arrival Plus card:
- 5% points rebate on all redemptions. (You used to get a 10% rebate.)
- Minimum travel redemption will be 10,000 points ($100). It used to be 2,500 points. ($25)
- Minimum cash redemption will be 5,000 points ($25). It used to be 2,500 points ($12.50)
- Tourist destinations will be removed as a travel category.
- Trip It Pro is being removed.
Those are some pretty bold “enhancements”. At the very best, the Arrival Plus card is now a 2.11% cashback card with an $89 annual fee. But lets quickly look at something. These changes are quite efficiently designed to create breakage. What is breakage? Quite simply it is when you have points left in your account that you don’t end up using.
For example, lets say someone spends $40K on their Arrival Plus card. They would earn 80,000 points which is worth $800 in travel. Now they redeem that $800 (hopefully they can redeem an even amount) and get back 4,000 points or 5%. Those 4,000 points can not be redeemed for anything under the new rules. Despite having a technical value of $40 towards travel, they are seemingly worthless.
Why Force Breakage
Barclay’s philosophy seems to be that this breakage will either save them money since you will lose more points, or it will force you to use the card to earn enough points to redeem. This actually seems like a sound business strategy on paper and who knows it may work. My guess though is it will create negative sentiment towards the company. No one likes when their points are trapped, especially when they can earn 2% in cash elsewhere.
Not Competitive In the Market
But lets say these changes have their intended effect and get people to use their cards more while at the same time making the Arrival Plus card profitable enough for Barclay’s. I don’t believe that will happen, but even if it does, there is one huge problem. The card is no longer competitive in the marketplace.
You can now get 2% cashback cards from a variety of banks without an annual fee. The Arrival Plus makes you jump through hoops in order to squeeze out the extra value and you can only redeem for travel. The Fidelity Amex gives you 2% in cash that can be put in a ROTH IRA. That is arguably more valuable in the long term.
But of course the Arrival Plus has no foreign transaction fees and the Fidelity Amex and Citi Double Cash cards do. That is true, but this argument only works if I carry one card around. How about a Citi Double Cash/ThankYou Premier combo? That comes with a $95 annual fee compared to the $89 annual fee for the Arrival Plus.
With that combo I get 3X ThankYou points on all travel and gas, 2X on dining and entertainment and I can use the Double Cash for 2% on everything else. That is virtually guaranteed to calculate out to more than a 2.1% return in the end. Even for someone who doesn’t want that complication, a simple 2% card with no restrictions is far more attractive than a 2.11% card with all of the rules in order to get the full value.
Barclay’s Doesn’t Have A Great Card
Which brings me to another problem with the bank’s strategy. Up until now, their only real attractive product to the mass market has been the Arrival Plus. Sure they have some lower level cards and Wyndham’s change probably has helped the value of that card. With the loss of the US Airways Mastercard, Barclay’s needs something that is competitive and the new Arrival Plus is not.
For a long time it was said that the bank was trying to play with the big boys when launching the Arrival Plus. I think they were, but they never really tried hard enough. Barclay’s bragged that they never had to advertise the Arrival through traditional means, but relied upon word of mouth. That money saved was supposedly poored back into the product. Something that we know wasn’t the best move in the end.
Through the use of affiliate marketing, Barclay’s quickly learned that the Arrival was attractive up front, but people rarely kept it after a year. Recently they pulled the card from most (or possibly all) affiliates, but still failed to do any real advertising in other mediums. I don’t really know how they could expect people to find out about it.
What the Arrival is Good For
Ironically this change makes the Arrival card very attractive for churners. Barclay’s has said the bonus will remain the same, so this is a nice and easy $400 dollars for travel. Since Barclay’s allows you to get a card multiple times, this could be a situation where someone gets this card every 18-24 months just for the bonus.
What Should They Do
As an outsider, I think the concept of the Arrival Card is flawed. They want this card to be a flagship travel card like the Sapphire Preferred, but the whole structure of its earnings doesn’t work with that vision. What they made with the Arrival Plus was a slightly more attractive Capital One Ventures card. Not something that screams premium card to me.
I think Barclay’s needs an entirely new premium travel product. Why not make the Arrival a straight 2% card and then launch a Sapphire Preferred/ThankYou Premier competitor? Something that earns in bonus categories, has some decent travel benefits and earns 1X on normal purchases. Of course then they would have to market the card heavily and offer a lucrative bonus just to be in the conversation. That is something that isn’t cheap.
Conclusion
Barclay’s has weakened the long term value of the Arrival Plus card while at the same time making it more attractive for those who want to game the system for sign up bonuses. I don’t know in what world that equals a great business decision. Perhaps Barclay’s is at a point where they just need to get the card to make more money and perhaps this solves their short term issues.
My prediction is that Barclay’s will continue to make money in the U.S., but as a small time player and not as a giant like some had predicted just a few years ago. With the US Airways card gone and the Arrival Plus just a shell of what it once was, I am hopeful Barclay’s will surprise us with something new and innovative, but I fear and suspect that won’t happen.
Have an opinion? Share it in the comments!
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[…] can use points for almost any redemption. The one lone exception is Airbnb (which you can use a Barclay Arrival+ or a Capital One card […]
[…] Plus are a no-brainer when it comes to renewal time, while others like say a Barclaycard Arrival+ probably aren’t keepers in my opinion, especially after all of the changes they made to the […]
Almost 11 months later from your original post, the general public cannot just goto findmybarclaycard website and apply for the Arrival Plus card (mid May 2016). The only way to apply now is through affiliates and affiliated referral links. Any reason why they did this?. Any word if newer “enhancements” or bad changes coming soon?
Strange. Since this post it has been available on the Barclaycard site directly for many months, but now as you say it isn’t. I don’t know what is going on.
Hi Shawn – Can you tell me if the bonus points earned on the Arrival Plus, be transferred to Hilton HHonors points?
Thanks for the great post and information.
No Arrival Plus points can only be redeemed for $.01 each for credits against actual travel charges. (Or at a lesser value for straight cash.) You can transfer them to other programs.
[…] Why the Recent Arrival Changes are a Terrible Business Move For Barclay’s […]
Again, I highly recommend speaking with a CPA/CFP/Attorney.
First..
No im first! +1
Couple of comments and a question for you a Shawn.
Good write up. I echo your sentiments, with the exception of one Barclays card. As I know you know, the Sallie Mae card with the 5% categories is a Barclays product and is honestly my favorite card in my wallet.
One question for ya. I was interested in that little golden nugget of transferring to a Roth IRA with FIA Amex rewards. Is it a FIA held account and with no tax implications? I hadn’t thought about where my cash back goes so it’s an interesting idea. I use my FIA Amex as the primary cc for AGC purchases so it gets heavy usage.
Heres my quick take on your inquiry (will see what Shawn says too).
So anytime you are talking about large financial institutions (ie. Fidelity), the IRS and anything US law/gov related, you need to be careful and consult with a CPA/CFP/Attorney.
The really cool thing about FIA Amex is that the card gives you cash-back with the flexibility of depositing your rewards into one or more eligible Fidelity brokerage, IRA, 529, or Cash Management accounts (CMA). So you’ll earn 2 Fidelity points per $1 (2% cash back) on all spending with the Fidelity Investment Rewards American Express card, when you deposit your rewards points into a Fidelity owned account (ie custodian). So if you spend $2,500 on this card, you’ll earn 5,000 points ($50). Thats a pretty small amount, but still, we need to understand the US tax laws.
Its obvious the Roth IRAs are held by Fidelity due to the CC T&C, but there are definitely tax implications.
1099-INT are typically issued by the bank (AMEX), but they do have thresholds, so maybe not. BofA for example does NOT issue 1099-INT for anything less than $600.
Remember, Roth IRAs are AFTER tax contributions so there are other critical items.
Roth IRAs are a great, tax-efficient way to save for your retirement, but many are confused because they dont know your contribution to a Roth IRA is affected by the amount of your modified AGI as computed for Roth IRA purpose.
For 2014 and 2015, your total contributions to ALL of your traditional and Roth IRAs COMBINED cannot be more than:
$5,500 ($6,500 if you’re age 50 or older), or your taxable compensation for the year, if your compensation was less than this dollar limit.
So yes, there are many implications to your question and you should consult a CPA.
Also, AMEX Serve changed their rules recently, and now you can only add funds online with an American Express credit card. Discover, MasterCard, and Visa credit cards do NOT work for online loads.
BUT you still don’t earn miles or points when you load AMEX Serve with an American Express issued card. But you WILL earn points from 3rd-party issued AMEX cards such as the Fidelity Investment Rewards American Express Card!
One major benefit to the points and mileage game is that it forces everyone to ask these questions and make them understand personal finance to whole new level. Definitely a win win.
Hopefully, that helps. If not and youre not even talking about the Fidelity AMEX card then my bad. Maybe this post will help someone else.
Oh ya, forgot to add that you could “test the system” and just roll the dice by doing whatever you want. Meaning you fund your Roth IRA beyond regulation and not report anything to the IRS. Maybe Fidelity doesnt even bother issuing a 1099-INT or 1099-MISC for that 2% and you just wing it even though its technically misc income for you. Not sure how Fidelity reports to IRS so I totally DONT recommend that obviously. We gotta stay safe and compliant here. You dont need crap happening later on. IRS is absolutely RUTHLESS to collect their taxes. They should change their names to “ANONYMOUS. WE ARE LEGION. WE DONT FORGIVE. WE DONT FORGET…”
Again, I highly recommend speaking with a CPA/CFP/Attorney.
Great summary. Everyone should definitely consult their attorney/CPA/CFP. My only point was that as a feature of the card you can take the 2% earned and put it into a Roth IRA. I won’t speak to anything beyond that.
They should have made it a 1.5% card with a 30% bonus on redemption. That would have really kept me on the treadmill. All day long.
My second year annual fee on Arrival Plus is posted. They have not offered any retention bonus.
I am considering replacing Arrival Plus with Venture From Capital One.
Both has same sign on bonus of 40K miles. Ann fee is $59 after 1st year for Venture. No 5% bonus on resumption. But The sing on bonus will cover the cost for few years.
It is Master card, so its accepted universally unlike Discover It Miles or Fidelity AmEx card.
Unless you have a ton of foreign transactions, you’re better off after the first year with a Citi Double Cash (which is a Mastercard), earning 2% (same as Venture) with NO annual fee.
Agreed, although the Venture does give a $400 bonus for signing up. The biggest problem with Capital One is they pull from all three credit bureaus.
Only thing to keep in mind with Venture is that Capital One pulls from all three bureaus.
I agree. They basically made it a card just for churners (I mean it kinda already was, but even more so). When you have to spend what $89k to justify the 0.11% extra compared to a 2% card (of course, this ignores the forex issue), and you still have breakage, the value of the card is just reduced to its signup bonus.
And I doubt of their customer base, churners are a profitable bunch.
But hey, I collected my signup bonus. I’m happy with that at least.
The Arrival Plus has been my go to card for the last 18 months or so I have had it. The $25 minimum for a travel redemption was perfect — I redeemed $38 train tickets in New York, a $68 bus tour ticket in Vancouver, and numerous <$50 car rentals. In fact I would say 75% of the redemptions were under $100. This really changes things for me. I may start hitting my DoublCash instead (I spend about $8k a month, currently, on the Arrival Plus). I didn't mind the $89 AF but now I may just take care of the remaining travel redemptions I have and focus my spend elsewhere. Geez.
I would consider the Arrival Plus and pay six dollars extra for the AF (the same amount as CSP and CTYP) if they structured it like Chase Sapphire Preferred and Citi Thank You Premier.
Best thing about Barclay is its not Chase of which I have too many
Very true. Too bad they don’t have very many attractive products. At least Wyndham is a somewhat decent proposition now with the 15k flat redemption cost.
Shawn,
I agree 100%. I called today to try and get a retention or spending bonus because “I heard rumors of the negative changes looming.” They offered me nothing but said to call back after November 17th when the changes go official. I asked specifically what the changes were. The representative told me about the higher redemption levels “and that’s about it, no other major changes” I asked if the rebate on redemptions were changing. The representative confirmed the changes to 5%. I was shocked he did not consider this a ‘major change.’ This card will make its way into may sock drawer in the next few months.
My annual fee was due this month. I was already considering canceling before the negative changes. The changes sealed the deal. I called for a retention offer. They couldn’t waive the fee, but a supervisor downgraded to a “rewards MasterCard” with a 1,000 bonus (=$10, same account for credit reporting, no hard pull, no annual fee). Figured I’ll get my $10 and maybe keep it, maybe not.
She mentioned that if I cancel/convert the Arrival, then I won’t be eligible to sign up for another Arrival for 12 months. So I’ll be attempting to get a new one next August if the bonus is still good. And I’ll sign up my wife for one next month.
I am just burning off my points right now and will cancel since my annual fee just came due. It doesn’t make sense to keep this card.
I got the arrival card last September. Should I cancel it now and reapply by end of the year to get the bonus? Or wait until March to be more than 18 months. I’m not familiar if Barclays has similar Citi’s 18 months or Chase 24 months per bonus rule…
They don’t really have a hard rule. Officially you cannot have more than one of the same product, however some people have been able to slip through. As far as I know, if you cancel your current card, you should be eligible for another one. With that said, if you aren’t instantly approved, it can be hard to get approved from retention for a new card if you recently cancelled the same product.
Hey Shawn, nice post man. Didnt they make huge changes just over a year ago to become the Arrival Plus? And now they are making huge changes again? Dude. No consistency. How can people hold on to the card? But like you said “unprofitable”. But then again, this card was never a long term thing for most of your readers right? It was always about the sign-up bonuses wasnt it?! Many other cards like Chase CSP totally beat this card even in its old form.
Also, just a note, while all changes are negative: Would help if there was comparison/contract listed from old benefits to new so your readers can easily see the major devaluations. From your nice write up, Im not clear what good parts were kept and what was changed. But sounds like sign-up bonus will stay the same which was the major reason to get this card anyway. Furthermore, Im not pro enough to follow your 2.11% cash back math. Can you explain for me?
I know you used to earn 2 miles for every $1 you spend on all purchases. So with 5%, isnt it 2.1% Cash Back? Either way, I am not sure if the 2.2% from old 10% on travel and 2.11% really makes a huge difference even with the crappy restriction of minimum travel redemption of 10k points.
Just like you said, Barclay’s has weakened the long term value of the Arrival Plus card even FURTHER (prior long term value wasnt that good anyway) while at the same time making it more attractive for those who want to game the system for sign up bonuses (of course).
Thanks Shawn!
Thanks for the feedback. I went back and clarified the changes as to how they relate to the benefits before. This was actually the best card for most people when it came to everyday non-bonused spend because of the 2.2% value. I used it for quite a lot of spending, but not it just doesn’t make sense anymore, especially considering all of the hoops you need to jump through to redeem the points.
Thanks for the update and clarification man!