Credit card issuers usually reserve their richest rewards for customers at the higher end who are willing to pay steep annual fees for special perks and privileges. But a recent surge in credit card rewards deals targeting mainstream consumers signals a key strategy shift for issuers looking to lock in these users' loyalty.

Issuers are willing to bear the steeper costs because they’re betting that over the long haul, consumers intent on earning more rewards will pile more of their everyday spending on to these attractive new cards, driving interest and other income.

“The goal is to develop a long-term habit of using and revolving, to keep earning rewards," said Brian Riley, a director of credit cards at Mercator Advisory Group.

Top examples include a pair of new cards from JPMorgan Chase & Co., including the new Sapphire Reserve card, which drew millions of deal-savvy consumers last year. The card was a hit with younger consumers drawn to its introductory sign-up points-bonus worth $1,500 that more than offset the card's $450 annual fee. That promotional deal recently expired, but Chase continues to promote an offer of giving at least $300 of the annual fee back in travel bonuses each year.

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Similarly, Chase’s revamped Amazon Prime Visa card aims for families reliant on Amazon Prime for expedited shipping by dangling a hefty 5% back on purchases, 2% back at gas stations, restaurants and drugstores and 1% back elsewhere. For the estimated 65 million consumers who already pay $99 for Amazon Prime membership, converting to the updated Amazon Prime Visa card easily offsets the annual fee, analysts note.

Citi also said it’s reaping strong growth from the new Costco Anywhere Visa rewards card it rolled out last fall, which comes free with a $55 Costco membership. It's drawing many mainstream users and families with rewards that include 4% back on gasoline purchases, 3% back on travel and restaurants, 2% back at Costco and 1% everywhere else, Citi said.

Both issuers are leaning heavily on mobile and digital channels to promote their cards, encouraging users to apply for and manage credit card usage and rewards with mobile wallets and apps. More than 80% of Chase’s new credit card accounts in 2016 were established through digital channels, Chase said during its earnings call with analysts on Jan. 13.

So far the strategy of heaping bigger rewards on average users is helping issuers grow their portfolios, but it comes at a price, analysts note. Chase last year saw double-digit sales volume growth from its cards, offset by a 38% decline in card-related income from costs associated with card marketing and rewards. Citi also noted steep costs last year associated with its “investment” in customer acquisition for its Costco cobranded card.

Consumers have long had many rewards cards to choose from, but the recent influx of relatively rich rewards available with so many mainstream cards is new, says Patricia Hewitt, CEO of PG Research & Advisory Services in Savannah, Ga. And it’s a strategy that’s not without risk.

“The latest enhancements to these rewards programs for mainstream users are an indication the credit card market is heating up again, but issuers may find it’s increasingly hard to drive usage for any particular card with so many other tempting deals available,” Hewitt said.

The risk is that consumers savvy enough to recognize the benefits of richer rewards cards will begin to use multiple cards strategically, concentrating their purchases on certain cards and in specific categories to maximize rewards, she warned.

“Issuers may see cardholders begin to use the new crop of rewards cards very granularly, concentrating Amazon spending on the Amazon card, and travel spending on the airline card, so the top-of-wallet spot will be in flux and no one issuer will get really broad usage,” Hewitt said.

So far issuers are pleased with results from the new crop of cards.

Chase's new Amazon Prime credit card has sparked a surge of interest from new prospects, as well as those using Chase's existing credit cards, said Steve Goodman, general manager of Chase Card Services.

"It remains to be seen if there will be a broad migration" from consumers switching to the latest Amazon card from existing Chase cards, "but we are very pleased with the initial response from consumers," Goodman said in an emailed statement.

Chase's CFO Marianne Lake noted in its earnings call this month that supporting richer card rewards has taken a big bite out of Chase's bottom line, but Goodman predicts the strategy will pay off in the long run. The new Amazon Prime rewards package "is a very compelling value proposition that we believe will keep customers engaged beyond the initial sign-up bonus," which includes a $70 Amazon gift card, Goodman said.

Citi has drawn more than 1 million new credit card customers since launching its new Costco card last year and the card's momentum continued to be "very encouraging" during the second half of 2016, John Gerspach, Citi's CFO, said Jan. 18 during its quarterly earnings conference call with analysts.

Gerspach clearly is counting new customers to stick with the card. New credit card accounts "typically feature promotional rates for a period of time, so we would expect revenue growth to follow once these balances mature and begin to accrue at full rate," Gerspach told analysts.

Analysts noted that rival issuers now may be tempted to ramp up their rewards in the wake of recent moves by Chase and Citi.

“It will be a tricky equation for issuers looking to find the right mix of customers who use their cards in a way that’s profitable without incurring too many costs on the acquisition and retention side,” Hewitt said.

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