Can JPMorgan Chase use grocery delivery to boost card payments? | PaymentsSource

Americans prefer to shop for groceries from the comfort of their couch. JPMorgan Chase strengthened its partnership with DoorDash to encourage consumers to place these orders with their credit cards.

As part of the expanded partnership, Chase Sapphire cardholders and other eligible members will receive new benefits for Shopping at DoorDashParticipants also receive free access to the delivery platform’s membership program, DashPass, which includes special discounts and eliminates delivery fees.

Card issuers are under pressure from a variety of perspectives, including lower fees, regulations, and increased competition from alternatives such as fintechs and buy now/pay later loans.

Financial incentives tied to credit cards are very attractive to consumers and offer the opportunity to deter consumers from looking for other payment options. 69 percent of consumers who increased their use of card-linked offers in 2022 increased their use in 2023, the next 12 months, according to the Digital Commerce Alliance.

These mutually beneficial partnerships are a joint strategy to encourage card usage and attract new members, said Gareth Lodge, London-based chief payments analyst at international research firm Celent.

“For card issuers, it’s about having the card that you need most often,” Lodge said. “The idea is that it’s a win-win situation. Cardholders will chase card with DoorDash, as opposed to another card with another delivery service.”

Chase declined to comment beyond the joint press release, in which Dana Pouwels, head of strategic card partnerships at Chase, noted that DoorDash is the cardholder’s “exclusive partner for the grocery and restaurant delivery platform.” A DoorDash spokesperson confirmed that “Chase is currently DoorDash’s only retail banking partner.”

Card issuers are pursuing such exclusive partnerships because they recognize that consumers are disillusioned with traditional card benefits such as airline miles and cash back, says Erin McCune, a San Francisco-based payments expert at global consulting firm Bain & Company.

Earlier this year, the Consumer Financial Protection Bureau published a report Details consumer frustrations with credit card rewards programs. The federal agency alleged that card issuers intentionally tighten limits on rewards to prevent members from accessing them as a cost-containment strategy. Cardholder rewards are a major cost for issuers; in 2022, consumers earned over $40 billion in rewards on major credit cards, a 50% increase from 2019, the agency said.

The difficulty of accessing airline miles and cash back may be why cardholders find rewards programs with linked offers attractive. And with DoorDash, Chase has tapped into a niche with particularly high demand: same-day delivery, McCune said.

The Covid-19 pandemic has solidified consumer demand for this service; 80% of consumers expect same-day delivery from online retailers and 41% are willing to pay more for it, according to a report by Capital One Shopping. The same-day delivery market is currently worth $9.25 billion and is expected to grow to $15.7 billion by 2033.

“Chase is competing with other issuers for consumer attention,” McCune said. “We know there is a lot of consumer demand for these products. If (the partnership) is exclusive, it is useful because there are only a limited number of such platforms.”

DoorDash has the largest share of the food delivery market (67%), followed by Uber Eats (23%), according to Data by Statistica. Both companies have expanded their offerings to other delivery services outside of restaurants and now compete with companies like Amazon and InstaCart. DoorDash’s partners outside of restaurants include the banner brands of Ahold Delhaize, Sephora, Ulta, Walgreens, CVS and Lowe’s, among others.

By partnering with the largest card issuer in the United States, DoorDash will have the opportunity to directly reach Chase’s nearly 80 million members through its rewards program.

The two companies have been offering co-branded credit card rewards since 2020, when restaurants only offered takeout orders during the Covid-19 pandemic. In 2021, Chase introduced a co-branded option with Mastercard that included DoorDash perks. The move raised eyebrows in the industry, as Visa was Chase’s dominant card issuing partner by a wide margin.

As part of the new expanded partnership with DoorDash, Chase members will receive benefits tailored specifically to their credit card type. Chase Sapphire members will receive $10 off their order twice a month and a monthly $5 coupon for grocery or other non-restaurant orders. Sapphire Preferred members will receive DashPass benefits for one year and $10 off one non-restaurant order per month. Both cardholders will receive these benefits through 2027. Starting in 2025, Freedom and Slate cardholders will receive six free months of DashPass and $10 off one non-restaurant order per quarter.

The Sapphire and Sapphire Preferred cards offer more benefits because they have higher APRs and maintenance fees than the Freedom and Slate cards. Lodge says this is a strategic decision that benefits both Chase and DoorDash.

“Rewards and incentives remain an important tool to encourage card usage, especially premium cards. And most apps want affluent users who use their cards frequently,” Lodge said.