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Bank today issues multiple type of Credit Cards with different promotions linked to them. Any reason stopping a bank from issuing a single card with combined benefits/promotions, wouldn't that be more consumer friendly resulting more customers and spending?

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  • $\begingroup$ So if a bank has ten different cards each offering 2% cashback, you're saying they should just have one card instead offering 20% cashback? $\endgroup$ – Kenny LJ Oct 15 '17 at 8:50
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Should P&G drop all their brands and only sell one shampoo and one deodorant and one toothpaste?

Volkswagen group own Skoda, Volkswagen and Audi (plus some additional brands - but lets exclude those for this example). Each brand has several series/models that are comparable between brand "levels". E.g Skoda Octavia = Volkswagen Passat = Audi A6.. Essentially the same car (sure not exactly the same car, but comparable in size, equipment, material etc.) - but different prices.

Would it be more consumer-friendly to skip the different brands and just offer one car? Same thing with credit cards. Different cards offer different things and a eligible for consumers with different income/wealth levels.

Take for example MasterCard Black which many banks will offer along with a large credit (e.g 100.000$ per month) and maybe a 24/7 concierge service that can take care of e.g plane tickets, helicopter service or whatever.

Take your average Joe with a yearly salary of 30.000, will he ever be in need of a 100.000 $ credit (or other way around; could he ever repay that debt?!).. and how often will he be using a concierge service for finding business class plane tickets from New York to Paris departuring the same day? Probably never.

That is why banks are not offering all customers the same credit card, because their customers have different needs.

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Would it be more consumer-friendly? Probably, for some customers.

But that's not the basis on which they'll make their decisions.

Their decision is: would it be more profitable? And the answer to that, is: no, probably not. Product differentiation and market segmentation allow them to extract more profit from a wider customer base. They use different products with differences in interest rates, interest-free periods, other charges, and side-benefits, to suit different market segments. This allows them to convert what would have been consumer-surplus in a single-product market, into producer surplus, i.e. more profit for the card issuer.

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