BofA’s New Awards Program is a Radical Play for Primacy. But Will It Work?
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Is Bank of America building on the success of a longtime customer loyalty program that some see as the gold standard? Or is it leaving some consumers behind even as it expands rewards eligibility to include virtually any retail customer, while upping the benefits for premium groups?
What’s happening: Effective on May 27, Bank of America will sunset its 12-year-old Preferred Rewards program in favor of the new BofA Rewards program.
Preferred Rewards is unique in that it spans all of a customer’s retail banking products with the bank, rather than focusing solely on their credit card accounts. That cross-platform approach has been atypical for banking providers, and the new program maintains that element.
What’s changing: Preferred Rewards required customers to maintain a specific dollar amount of business with the bank. The new program now includes all customers, with no minimums.
Why this matters to competitors. In an era where many consumers tend to spread accounts among multiple providers, denying any of them primacy, BofA is upping the ante for consumers to consolidate their financial relationships there.
However, two experts point to a devaluation in the new program that could impact the middle tier of customers, potentially pushing them to either bring the bank more business — if they can — or prompting them to look elsewhere
Need to Know:
- Preferred Rewards, introduced in 2014, is being replaced by BofA Rewards in May.
- Bank officials noted that 11 million customers currently take part in the original program, and that they believe that an additional 30 million bank customers will be eligible for the new program.
- At the entry tier for the new program, no minimum deposit or investment balance is required to earn rewards.
- At all levels of the program, there is no fee for participation.
What BofA is after. In a recent analyst meeting, Brian Moynihan, chair and CEO, spoke of the need for growth and described what he called a “stair step” approach for building broader relationships once an anchor account is established. The new program follows that model, by including incentives for additional products like dangling rate discounts, fee waivers and more. At higher levels, “lifestyle” perks begin to kick in.
The new formula: Experts see the new effort as blending mass market loyalty at the low end with premier level perks at the high end, but without the hefty fees seen on richer card product packages such as Chase Sapphire Reserve and American Express Platinum.
Andrew Davidson, principal strategist at Mintel, says the effort coincides with signals the bank has made about doubling down investments in its credit card products. And during the analyst event, only days before the new program was unveiled, Moynihan noted that Holly O’Neill, president of consumer, retail and preferred lines of business, has committed to growing card balances more rapidly.
Davidson points out that rivals JPMorgan Chase, Capital One and American Express have been spending heavily on card marketing, outpacing BofA. He says the bank clearly wants to increase card penetration into its consumer banking base.
What BofA’s New Reward Program Will Look Like
BofA Rewards will launch with four customer tiers, designed, according to officials, to align with customer goals at each life stage. The bank indicates that rewards can range from $150 to $4,000 in annual value depending on the customer’s tier and how much they take advantage of the program. The minimum relationship is to have a personal checking account at BofA.
The tiers are based on the customer’s three-month average account balance across their deposit and investment accounts:
• Member tier: Under $30,000.
Benefits include a credit card rewards bonus of 10%, a $100 discount on mortgage fees, and a 0.1% auto loan discount. All levels include enhanced fraud and ID monitoring — which officials pointed out other brands charge for — and access to deals with a wide range of retailers, including some BofA exclusives. (Card bonuses apply the bonus rate to reward percentages applicable to each particular BofA card, producing a boost.)
• Preferred Plus tier: From $30,000 to $100,000.
Among the benefits included are a credit card rewards bonus of 25%, a mortgage fee discount of $300, a home equity line of credit rate discount of 0.25%, an auto loan discount of 0.25%, and free checking and savings accounts. Preferred Plus also receives seven no- fee services, from a selection of services, as well as one free U.S. ATM withdrawal from a domestic non-BofA machine, as well as other discounts.
• Preferred Honors tier: From $100,000 to $1 million.
Among the benefits included are a credit card rewards bonus of 50%, a mortgage fee discount of $600, a HELOC rate discount of 0.375%, an auto loan discount of 0.35%, free checking and savings accounts, seven no-fee services and unlimited U.S. ATM withdrawals.
At this level, a selection of lifestyle benefits with premium brands like BMW and Virgin Hotels kicks in. Another perk is a credit of a total of $8 per month on popular subscription services.
• Premier tier: More than $1 million
At this top level, a 75% credit card rewards bonus begins and higher discounts apply to rates on mortgages, HELOCs, and auto loans. Beyond free checking and savings, all services are free and unlimited waivers apply to both domestic and international ATM withdrawals. The subscription reimbursement goes up to $15 a month and a package of premium offers is added to those included in Preferred Honors benefits. This level also includes curated private events.
Current Preferred Rewards customers will maintain existing benefits for six months after the changeover, while new benefits will be available as soon as BofA Rewards commences in May.
Read more: How BofA Sifts Real-time Feedback to Refine CX and Spot Opportunities
Rewards for Everyone! But Will It Pull?
At the Member level, benefits become available to any customer with an account, which is a new competitive posture, according to Davidson. He points out that his own megabank provider requires minimum balances just to avoid fees.
Key message: Consumers want defined value. Rather than leaning into hazy images of premium status, Davidson says that card issuers increasingly strive to show customers how they’ll see specific, dollar value. He says people are doing the math.
But while in the ultra-premium card space benefits are designed to offset fees, in the case of BofA, he says they are designed to encourage consolidation.
“Bank of America is always going to be about relationships, always about deepening relationships with the bank,” says Davidson. In part, he adds, the new program appears to be a bid to win people who are not willing to pay fees, but who seek value.
The economic background: Ted Rossman, principal analyst at Bankrate, sees the new BofA program as a reflection of the so-called “K-shaped economy.” While the Member level does give some perks, Rossman sees the major thrust of the program being a doubling-down on higher-revenue, higher-income customers and prospects.
Are banks mimicking airlines? Rossman points out that this attitude parallels the viewpoint more and more airline frequent traveler programs have adopted. “They’ve gone to revenue-based rewards in recent years, where it’s not necessarily how many miles you actually fly on the airline, but rather how much you spend,” he explains.
Among the airlines, he points out, rewards have grown so commoditized that some perks can be difficult to get for members flying out of hub cities. There’s too much competition. He says one reason behind the major fee hikes for the ultra-premium credit cards was to cull the base to bring back some exclusivity to perks like airline lounge access.
How will consumers see things? Rossman says that higher-tier consumers look at costs beyond actual fees. Bringing more business to BofA may cut their fees and earn attractive perks, but at what opportunity cost? he asks.
“Would that $100,000 in deposits or investments be better put someplace else?” says Rossman. “That’s something that people need to think through. Is the juice worth the squeeze?”
Read more: How to Build Customer Relationships When Checking Accounts No Longer Confer Primacy
Will Some BofA Customers Experience Award Devaluation?
The six-month grandfather period referred to earlier, as the bank transitions to the new program, was a red flag to both Davidson and Rossman. Both see a devaluation coming for customers in the middle range.
Take the booster rates on credit card rewards. Davidson says under the old program a 75% booster rate was available to customers with $100,000 with BofA. “Now that particular benefit is being moved to consumers who have $1 million with BofA,” he says. The lower group is now receiving a booster of only 50%.
“They have moved the goalposts,” says Rossman, adding that many who were used to the 75% booster don’t have the resources to regain that perk by consolidating more than $1 million in balances at BofA.
“I know this makes marketing and business sense,” says Rossman, “but some existing customers will be disappointed by some of the changes.”
Rossman also questions how juicy the offered loan interest rate discounts are compared to the rates that a savvy consumer might find at other lenders, at least at the Minimum tier.
“It gets more enticing when you hit the categories where you are six figures and up,” says Rossman. “But there is value in being a free agent and getting the absolute best mortgage rate, auto loan rate, HELOC rate irrespective of loyalty.”
Read next: Will Dizzying Card Fees from Chase, Amex Spark a User Uprising, Create Openings for Other Issuers?
