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.
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.
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!