Banking Rewards & Dining: A Changing Landscape Presented by: Sponsored by: INTRODUCTION Banks and financial services companies have used Travel remains dining as a key differentiator for their card products the most impacted for many years. The COVID crisis has accelerated this category, still trend while upending existing usage of cards for other down over 50%... services. Simply put, during the pandemic, travel and Crisis fosters related benefits have become less relevant. Card issuers innovation. are pivoting to where consumers are spending instead, Vasant Prabhu namely: food. Vice Chairman and Chief Financial Officer, Visa Vasant Prabhu, Vice Chairman and CFO, of Visa, noted as much during a July earnings call, stating: “Travel remains the most impacted category, still down over 50%. Within the restaurant category, card-present spend is still declining, while card-not- present spend continues to grow significantly, with quick service restaurants outperforming.…Crisis fosters innovation. There’s a lot going on.”1 Card issuers are innovating. They are experimenting with differing approaches of how to adapt offerings to meet customers’ dining, delivery, and grocery needs during, as well as perhaps after, the pandemic. Background: dining and dining cards 2017 Dining cards have a long and rich heritage, starting Launch of Capital One Savor Card, with the launch of the Diners Club Card in 1950 by the first card catering to food spend businessman Frank McNamara. He founded the company following an incident: he forgot to bring his wallet to a New York restaurant and vowed never to be 2018 similarly embarrassed again.2 Citi Prestige increases earn for dining rewards to 5X points Over the past 5 years credit card companies have recognized dining as a key focus area to attract affluent consumers. For example, in 2017, Capital One 2018 launched the Savor Card, targeting foodies. And in 2019, Chase partners with Tock to allow cardholders to book reservations Amex acquired restaurant reservations platform Resy. through the Chase app The Amex deal is indicative of the importance of dining, 2019 not just as a lever to drive spend, but as a “perk” for high Amex acquisition of dining end card users. The Amex Global Dining Collection was reservation platform Resy launched to offer exclusive reservations and experiences at a curated group of restaurants. Both Capital One and Chase Sapphire Reserve began offering reservations too, as well as access to exclusive dining experiences such as private dinners with celebrity chefs like Thomas Keller. High end credit cards’ success often stems from offering travel perks, such as early boarding or lounge access, and access to members-only portals for booking travel using points. These VIP experiences substantiate the fees of high end cards. Frequently, accrued points can 36x only be redeemed for travel products. However, COVID INCREASE IN GROCERY & MEAL DELIVERY SPENDING has altered the relevancy and value of the traditional SINCE MARCH 2020 redemption portfolio. Consumers might no longer be traveling. But they are using their cards for dining more than ever – at home through deliveries and ordering via apps. Forthcoming research3 from J.D. Power shows how spending has changed: card holders are spending less money overall and they are doing it differently: on food and home goods as opposed to travel. Similarly, a small research set3 from Ondot Systems showed a 36x increase in grocery and meal delivery spending since the pandemic began. In response to these changes, card issuers are rethinking the entire travel and dining categories, along several axes. ACCORDING TO GOOGLE “Pandemic proof” – brands shifting resources TRENDS, INTEREST IN away from travel rewards and towards “TRAVEL CREDIT CARDS” REMAINS lifestyle rewards Card issuers are quickly meeting consumers where they are today, and are now increasing reward earning in ways that specifically target food delivery and groceries. 40%4 “Issuers are trying to capture and retain customers who BELOW AVERAGE have cards that aren’t geared to this specific purpose,” says John Cabell, Director of J.D. Power’s Wealth & Lending Intelligence. A travel card, such as US Bank’s popular Altitude Go Card, may now offer 3x points on dining, even though it is not a dining card per se. Chase Freedom also quickly amped up their lifestyle strategy to offer 5% cash back on grocery orders. This same adaptation by issuers is found when it comes to redemption. Whereas previously points could only been used for air, car, or hotel, as of April some points can now be redeemed for dining out, ordering in, or groceries. For example, some Capital One travel cards now allow for a statement credit for food delivery and streaming. dining rewards by card Issuer Earn Redeem Cashback Additional Offer(s) 4x points on dining Use points inside $120-$200 additional statement credits American Express 4x points on food delivery the Grubhub app - (beyond points) as part of Amex 4x points on groceries membership 1 5% cash back $100 Uber Cash after spending $500 Visa - - UberEats; on purchases in the first 90 days Uber Card 3% cash back Applications for the card are currently restaurants closed. 2 $5 off every purchase of $25 or Mastercard - - - more with Postmates for World Elite World Elite Mastercard holders Chase Sapphire Reserve® Chase 3x points on food delivery cardmembers get: Free DashPass Sapphire Reserve 3x points on restaurants - - for up to 2 years, immediately upon 5x points on groceries activation + $60 statement credit for DoorDash each of first two years. Discover - - 2% cashback on dining - Gas & Restaurants Formerly the Savor card included Capital One 4% cashback on dining Postmates Unlimited membership, but Venture 5x points on UberEats - 2% cashback on that benefit has been sunset. Savor groceries Access to premium reservations through OpenTable. Citi Rewards 2x points on groceries - - $5 off every purchase of $25 or more with Postmates. Bank of America 2% cashback on dining Cash Rewards - - 2% cashback on - groceries Wells Fargo 3x points on dining - - - Propel 3x points on food delivery US Bank 4x points on food delivery Altitude Go 2x points on groceries - - - Signature TD Bank 3% cashback on dining Cash Credit Card - - 2% cashback on - groceries HSBC - - - $5 off every purchase of $25 or more Premier World with Postmates. NEW BEHAVIOR AT THE TOP OF THE WALLET Q: How much have you changed Issuers are also aggressively pursuing strategic your credit card partnerships that support new consumer behavior. Food strategy during delivery usage surged 70% in the final week of March COVID? 2020, and average driver earnings quadrupled6. At least some of this behavior is expected to stick, and Nick Ewen The Points Guy banks looking to stay top-of-mind for consumers are integrating food delivery into their strategy. A: I’m not flying, “From an issuer standpoint, this is a way to compete. so ‘surprise’ my You want to be the ‘card on file’ when the consumer goes use for [travel to DoorDash and hits send,” says Chris Harris, head of cards] is nil, so marketing, Ondot Systems. those cards are just not at the top of my wallet anymore. Richard Kerr The Points Guy5 Amex has taken it even a step further and now allows users to burn points at checkout within the Grubhub app. One reason consumers are ordering in is to support their We want to get local restaurant, to try to keep them open. “The motive bigger in [food is social responsibility,” says Sankar Krishnan, EVP and delivery], and Industry Head, Banking & Capital Markets, at Capgemini. really scale is Krishnan observes that restaurants are themselves how you bring changing to try better serve consumers in this time of the category into pandemic: some are switching to prepaid options. profitability. Dara Khosrowshahi Beyond well established food delivery apps, grocery CEO, Uber delivery, meal kit delivery, and alcohol delivery are also rapidly scaling and increasing their market penetration. 7 US MARKET SHARE Loyalty and point programs have been even slower to adopt integrations in these new, emerging categories, but we see incredible opportunity to grab an even larger 46% share of cardholders’ food and beverage spend. DoorDash 24% The digitization of food and beverage, and the emergence UberEats of national players with robust inventory and coverage 21% creates opportunity for banks and credit unions to drive GrubHub true engagement with everyday value. 8% Postmates 1% Cavier, Waitr, Other food delivery’s global landscape EUROPE JustEat APAC North America Delivery Hero Zomato Deliveroo DoorDash EMEa UberEats Careem UberEats Zwiggy Zomato GrubHub FoodPanda africa Talabat south america Jumia UCook PedidosYa oceania iFood Menulog food delivery’s global landscape total market There has already been major consolidation in the global food delivery market, with Dutch food delivery app Just Eat Takeaway acquiring Grubhub in June; $154B8 and Berlin-based Delivery Hero acquiring more than GLOBALLY BY 2023 30 regional players in a variety of markets. However despite consolidation, there remains a lack of a dominant global player, and restaurants remain inherently local, particularly in emerging markets in Asia and Africa. Additionally, niche players like Chowbus and Pizza Button offer unique value props outside the ecosystem of the major players. Global issuers will need to work with an integrator to provide a seamless experience worldwide, and the rapid clip of acquisitions means commercial terms and negotiatons are a moving target. The Way Forward Increasing earn multipliers on spending categories is easy, and we’ve rapidly seen almost every high end card make this pivot in April and May of 2020. But the value of points earned is negligible when issuers offer few options to redeem them. We believe the real value is in microburn, and integrating food delivery into the redemption experience, augmenting the travel products that cardholders may not be using for months.