Credit-card rewards have become a moving target. Annual fees rise, welcome bonuses jump around, lounge access changes, new redemption options appear. So a card that looked unbeatable two years ago can suddenly feel average.
For consumers, that means checking whether the rewards still justify the card. For investors, those changes reveal Canadian banks are fighting hard to keep customers spending on their cards.
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Rewards aren’t free
Banks don’t hand out points because they enjoy helping you with your trip to Paris. Credit cards can generate interest, annual fees, and interchange revenue. Interchange is the fee paid to the card-issuing bank when a customer makes a purchase. Rewards help persuade customers to choose one card over another, spend more on it, and potentially deepen their relationship with the bank.
The economics have tightened. Federal agreements with Visa and Mastercard reduced interchange fees for qualifying Canadian small businesses beginning in October 2024. In-store domestic consumer credit interchange rates were lowered to a 0.95% weighted average for eligible merchants.
The government said more than 90% of businesses accepting credit cards would qualify for lower rates, with savings of about $1 billion over five years. The agreements also protected consumer reward points. That leaves banks balancing two competing goals. To keep the card attractive, without making rewards too expensive.
Watch the changes
Canadian Imperial Bank of Commerce (TSX: CM) provides a useful example. Its Aventura Visa Infinite card currently carries a $139 annual fee, while a September promotion offers new approved cardholders as many as 60,000 Aventura points plus a first-year fee rebate after meeting spending requirements.
At the other end of the market, CIBC’s Adapta Mastercard has no annual fee and automatically pays a higher points rate on a cardholder’s top three spending categories each month. That’s a different kind of competition. Instead of assuming everyone wants travel points and airport lounges, the bank can design rewards around how customers actually spend.
The important number for shareholders isn’t how many points somebody earns buying groceries. It’s whether better products bring customers into the bank and convince them to stay. That leads to CIBC.
CM
CIBC serves about 15 million clients through Canadian banking, commercial banking and wealth management, U.S. operations, and capital markets. The bank’s Costco relationship, Simplii digital operation, and affluent-client businesses give it several ways to bring customers into its broader ecosystem.
The strategy is showing up in earnings. Third-quarter revenue increased 15% year over year to $8.4 billion. Adjusted earnings per share (EPS) climbed 26% to $2.73. Canadian Personal and Business Banking net income increased 17%.
That’s the division where credit cards sit, but I’d avoid giving rewards programs too much credit for the increase. Higher net interest margins and loan growth were the main reported revenue drivers. The bigger point is that cards can strengthen a customer relationship that eventually includes deposits, mortgages, investments, and other products.
More than points
That relationship can become increasingly valuable. A customer who opens a credit card for a welcome offer isn’t particularly exciting. A customer who later moves a paycheque, savings, investments, and mortgage to the same bank is much more useful. That’s why investors looking at Canadian dividend stocks should pay attention to customer acquisition and retention alongside loan growth and interest margins.
CIBC currently pays $1.07 quarterly, or $4.28 annually. At $157.19, that’s a yield around 2.7%. The stock also trades at roughly 15 times trailing earnings and 14.7 times forward earnings. Given its fair value sits at $135, below today’s price, it looks overvalued. Still, that remains an analyst estimate rather than a guaranteed destination.
There are other points to consider. Credit cards aren’t pure upside for banks. Rewards cost money, lower interchange fees squeeze one revenue source, and consumers can switch cards when offers deteriorate. All while high credit-card rates can create losses if borrowers run into trouble. That makes valuation and credit quality more important than the latest points promotion when buying stocks in Canada.
Bottom line
Changing credit-card rewards isn’t a reason to buy or sell a bank stock. That said, it can be evidence of how aggressively banks compete for customer relationships. CIBC is adjusting its rewards lineup while revenue, earnings, and Canadian banking profits keep growing.
I’d watch the points as a customer. As an investor, I’d watch whether those cards help create customers who stick around long after the welcome bonus is gone.
