A Single New Credit Card Is Costing An Issuer Up To $300 Million In Profits This Quarter

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The Chase Sapphire Reserve Card is arguably the hottest new credit card this year, and its popularity is costing Chase a lot in profits… at least in the short term. Per Bloomberg, the Sapphire Reserve has cost Chase $200-300 million in cardmember acquisition costs so far, which draws from their short term profits:

JPMorgan Chase & Co.’s new Sapphire Reserve credit card will reduce the bank’s profit by $200 million to $300 million in the fourth quarter, according to Chief Executive Officer Jamie Dimon.

“The card has been doing great” and was embraced by consumers before the bank did any marketing, Dimon said Tuesday at an investor conference in New York. “Now we have to account for acquisition cost in that business.”

Of course that’s to be expected, given that the card has a sign-up bonus of 100,000 points, which can be redeemed for $1,500 worth of travel. Beyond that, the card offers a $300 travel credit, which helps offset the $450 annual fee. So when you consider the $1,800 in rewards and the $450 annual fee, the per person acquisition cost is somewhere around $1,350. That’s huge.

Furthermore, JP Morgan’s chief executive said that they have been pleasantly surprised by the performance of the Sapphire Reserve, and that they plan on introducing more new cards soon. Per Reuters:

In the credit card wars being waged by banks, Dimon said JPMorgan plans to introduce more new cards after finding surprisingly strong demand for its Sapphire Reserve premium card this year. He did not say when the new cards will be offered, or how they might differ from the bank’s current product line.

While I doubt we’ll ever find out publicly, I’d be curious to know how much the Sapphire Reserve has cannibalized the business of the Chase Sapphire Preferred® Card, which is one of the most lucrative mid-range credit cards. However, there’s not all that much value to having the Preferred if you also have the Reserve.

Chase has also just introduced the Ink Business Preferred℠ Credit Card, which is offering a big sign-up bonus of 80,000 points upon completing minimum spend. I doubt quite as many people will sign up for that as the Reserve, though, given that it’s a business card. However, it’s still very lucrative.

I can’t wait to see what else Chase comes up with!

About lucky

Ben Schlappig (aka Lucky) is a travel consultant, blogger, and avid points collector. He travels about 400,000 miles a year, primarily using miles and points to fund his first class experiences. He chronicles his adventures, along with industry news, here at One Mile At A Time.

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Comments

  1. CSR seems to have really struck a chord with millennials in a way that cards specifically marketed toward them never have. I wonder if Chase or other issuers will be able to replicate that for other products.

  2. The hype will die down once the sign up bonus dies down. Pretty simple economics here, if you can get a card with a $2,100 cash value for travel for $450/year, it is irrational to pass up on. I’m downgrading to CSP once I get my $300 travel credit next year.

  3. I’m absolutely keeping the card after the first year, assuming they don’t downgrade any of the benefits. 3X points on travel and dining is perfect for me, and the PP lounge access, as well as Silver Car discount and National Car Rental upgrade with the primary insurance for car rentals are all insanely appealing to me.

    May not work for everyone, but for me it’s the perfect card.

  4. Pretty sure Chase will be the lone issuer once SPG and Marriott are a single unified points currency.

  5. Chase has found a sweet spot to entice people to pick up a card with a huge annual fee. For them it was worth a shot to attract people to a premium card offering, to try to grab some business that other, less beneficial, high annual fee cards had been demanding. Seems like they’ve done it, and with minimal advertising. Throw into the mix the 5/24 rule and the response must be completely surprising to them.

    I agree with others, Reserve is worth holding onto for those that travel, otherwise CSP is the way to go. Certainly not worth keeping both of them though.

  6. And how do Chase’s hotel partners feel about how this places the hotel cards?

    I instinctively used my Ritz-Carlton card at a Ritz-carlton stay last week, but I’m sure many people would rather have three transferable airline miles rather than five R-C points. And how about five Fairmont or IHG points vs. three transferable miles?

  7. Is it a good move to apply for the CSR now? I’m sure I won’t get a 2016 December statement so the $300 airline credit is gone for this year. What mental math should I be doing when deciding to apply now or wait?

  8. @omnijeff, you could purchase gift cards from airlines if you know you’re going to be booking with those airlines in the near future.

  9. I wonder what it cost them in lost business due to people like me that were willing to move from the Citi Prestige but were turned down for five hits on my credit in 24 months? Closed my Private Banking relationship and moved it to another bank. Had the pleasure of refinancing my home at lower rate and shorter term, moved my checking + savings plus 401k, as well as all other credit cards but one. My Private Banker was dumbfounded when I explained why I was moving the accounts and she could do nothing to save the relationship.

  10. Of course most people aren’t cashing out their points for $1500 at this point in time. And there’s no way to know for sure how many of the cardholders have maxed out the $300 travel credit. People who are in The Game and most people who follow this blog likely have, but not everyone. So you can speculate about the worst case scenario, but without seeing their books it’s not possible to know how how much it’s costing them.

  11. Anyone have any ideas as to when the current sign up bonus might change? Today marks the 2 year anmiversay of my 5th credit card open so i take it i need another month to apply for this!

  12. @Ray, Your banker was really only dumbfounded that you dropped them for such a petty reason after they’de been raking you over the coles with their products prior to that with you not giving a damn.

  13. I agree with the poster above that this card has really struck a chord with millennials like me. I plan to hold on this card indefinitely even though I have yet to use my bonus (and may not for awhile). I really hope they don’t dilute this product because my satisfaction with “Chase” is at an all-time high. Funny to think when I first started learning about credit cards I used to think an AmEx Platinum card was the pinnacle.

    Also, I’ll probably get flamed for this but I actually like the 5/24 rule because it inhibits the churners (Yes, I know where I’m typing this) that could/would potentially ruin this card for the rest of us who plan on keeping it for the long-haul.

  14. I love my CSR, but I have to say that AMEX kicked them hard in the teeth with 5x earning on airfare. I’ve shifted all my airfare spend to AMEX for that reason. Chase is already playing catch-up with the earning scheme on this card.

  15. True but amex has a horrible reimbursement process for less than half the fee.

    I’m eligible for the platinum but see no point in getting until I get a low spend 100k points offer. I would churn it and never keep the card.

    The benefits are better but at such a high cost. Amex platinum seems like a better deal for older people or those without young kids. No chance I would renew that card the next 15 years. CSR however, if it stays with the same reimbursement amount and process will keep my business at least that long.

  16. Boo Hoo and a rubber biscuit for Jamie Dimon at Chase.

    Chase might be paying more for each customer acquisition but there will be a large number of those that carry balances each month and thru the year and those accounts will balance the overall costs.

    Using credit cards for travel benefits is an intelligent thing to do for those that can and do pay their balances off each month. That is the known given in this field but the truth is there are those that overlook that significant fact to participate in something for immediate gratification at the sake of long term debt.

    It will be interesting to see how the major card issuers react with their rates when the Fed finally decides to raise a quarter point.

  17. @Robert that is exactly what I want to know. As I mentioned in my earlier comment, even if I were approved today, I wouldn’t get a December 2016 statement. So would I still get the 2016 and 2017 credits?

  18. I just applied for this card yesterday–thanks to your website. I am flying my entire family to the east coast in June for a family reunion and these points will come in sooo handy (there are six of us + a baby). I have an upcoming trip to California that I haven’t booked the ticket yet so–as soon as the card arrives–I will book it and apply this year’s $300 travel credit to the ticket price. The application process was sped up because of a comment on your site about upgrading my regular Chase Saphire card to Reserve status. I never would have thought to do that. I would have gone through the tedious application process and, perhaps, not received the card in time to get the 2016 travel credit for my California trip! In addition, I’m super excited to get access to many different airline’s lounges–as promised on the card website. Thank you, Lucky!

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