🌊 The Great American Credit Card Divide

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By Max Frost

In June, Chase raised the annual fee on its Sapphire Reserve Credit card from $550 to $795. A month later, Citi announced its first premium credit card, the $595 “Strata Elite.” That same day, The Wall Street Journal reported, “Analysts expect American Express to bump up the $695 fee for its Platinum card later this year.”

Those who can afford these cards – who must have “Excellent” credit – can reap thousands of dollars in rewards, exclusive access to lounges and events, and discounts on food delivery, travel, and rides. 

But most Americans have a very different relationship with their credit card. In today’s deep-dive, we look at America’s credit-card divide and what it says about the US economy.

Once niche, premium credit cards have become mainstream status symbols among wealthy Americans. Chase’s recent 44% price hike on its Sapphire Reserve card reflects a broader confidence among card issuers that wealthy Americans will pay almost any price for the right combination of prestige and perks.

But beneath this particularly capitalistic business is a controversial form of wealth redistribution. 

Card companies generate enormous profits from interchange fees – the charges merchants pay on each transaction and which are split between card issuers (e.g., Chase, Amex) and payment networks (e.g., Visa, Mastercard). On premium cards, they can reach 2-3%. American Express, the pioneer of this model, collected over $24B in swipe fees in 2018, more than triple its income on interest. They then redistribute this revenue as lavish rewards to premium cardholders.  In 2023, a paper published by the Federal Reserve found the following: 

Take a cardholder who can charge $250,000 or more annually: Such a spender could achieve $6,000+ more in tax-free value, equivalent to $10,000+ in pre-tax income. The mathematics are compelling: Pay $795 upfront to receive benefits worth many times that amount. It's a deal that makes perfect sense for high spenders.

But the majority of Americans who lack the spending power or credit profiles to qualify are on the other side of the system, not benefiting from but subsidizing it. 

Editor’s Note

Thanks for reading. And send in your takes here to let us know what you think about the American credit card divide. We’re very curious to hear your thoughts.  

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That’s all for today. See you tomorrow,
Max and Max