Posted by Chuck on July 28, 2017
Credit Cards

Published on July 28th, 2017 | by Chuck

92

Chase Looking to Cut $200M in Costs from Chase Sapphire Reserve Amid Concerns the Card Isn’t Profitable

Wall Street Journal ran a piece today about the profitability and long-term prospects of the Chase Sapphire Reserve card. A lot of the talk now is due to the fact that the card is nearing it’s one-year mark, a critical point when it’ll become clear how many of the cardholders are planning on keeping the card long term and how many will cancel.

The article discusses the increasing cost of rewards, including savvy users maximizing benefits, cardholders using the card  more in the bonus categories, cardholders not carrying balances, as well as “some 5% to 10% of card holders tend to “shop around,” looking for new rewards.”

Chase is pushing for about $200 million in fresh cost cuts in the unit that oversees the CSR card, according to the article.

The question for us is how what kind of cost cutting measures Chase will take. Will the remove or reduce some benefits? Will they lower the annual travel credit (doubtful)? Put a cap on the amount which can be earned in bonus categories?

They do word it as a “way to eliminate waste,” so maybe it’s overkill to assume any benefit changes since they might just make some processes more efficient and somehow cut costs that way. I also wonder if it’ll be more about doing more reviews to weed out unprofitable customers as opposed to switching any card benefits.

We’ve recently seen two cost-cutting measures: (1) the $300 travel credit is now calculated for new members based on the cardmember year which saves Chase $300 in acquisition costs on the card since previously it was possible to use the travel credit twice during the first year, (2) Chase may have limited a bit what is considered as Travel since Plastiq is no longer coding as the bonus category (though it’s not entirely clear that this change was made by Chase).

A few other interesting points found in the article:

  • “J.P. Morgan has tried to avoid signing up potential defectors by rejecting applicants who have opened up five new credit cards in the previous 24 months, known internally as the ‘5-24 rule’.
    So it’s not just us calling it the 5/24 rule. 😉 I wonder who started using that terminology first.
  • “You expense the acquisition costs over 12 months. The benefit comes over seven years,” J.P. Morgan Chairman and Chief Executive James Dimon said on a conference call this month. Seven years seems to me like a long time to turn a profit on a customer.
  • The article discusses favorably the 100,000 UR points promo for Sapphire cardholders who take out a mortgage. 4,300 Sapphire cardholders took out a mortgage this year, versus half that amount last year. Of course, there are way more Sapphire cardholders this year than last year (meaning, it’s not that they’ve doubled the amount of people taking up on the promotion, more likely they’ve doubled the pool of Sapphire cardholders), but it just highlights that there are other aspects of profitability of having such cardholders, especially younger cardholders who are likely to be at a home-buying stage in their life. Let’s see if Chase doubles down on the cross-selling strategy with other such offers.
  • It’s interesting to see a figure put on churners: we are 5-10% of the market, apparently.  “Some 5% to 10% of card holders tend to “shop around,” looking for new rewards.”

We’ve mentioned few points from the WSJ article, the whole thing is worth a read.

RelatedKeep, Downgrade, Cancel: Chase Sapphire Reserve

Chase Sapphire Reserve



92 Responses to Chase Looking to Cut $200M in Costs from Chase Sapphire Reserve Amid Concerns the Card Isn’t Profitable

  1. Rob says:

    My bet is that they cut the 1.5 cent cash redemption value, like how Amex took down the 50% rebate to 35%. That is probably the quickest way to bring down cash outlay.

    • Peter says:

      Which is the only reason I keep my account open.

    • Matthew P says:

      To do that, they’d probably have to nerf the CSP down to 1x redemption. Which they could do, but it removes a vital feature that justifies the yearly fee of that card.

    • Tom says:

      Possibly, except when AMEX dropped the rebate from 50% to 35%, it effectively reduced the value of the points from 2 ccp to 1.5 cpp, when used towards the AMEX business platinum airline pay-with-points benefit. This brought AMEX in line with Chase at 1.5 cpp, as well as the USB Altitude Reserve at 1.5 cpp as well. If Chase reduces the CSR’s redemption value below 1.5 cpp, then that will put them at a massive disadvantage compared to the other high end offerings (including even the newly rumored/confirmed BOA card, which supposedly also has a 1.5 cpp value towards travel). All things considered, I doubt Chase will do this. They also can’t reduce the earnings on dining or travel below 3x, or else there will be little benefit to keeping the card over the CSP which already earns 2x on those categories. I bet they will focus on nerfing lots of little things to save money and/or increase breakage, such as reducing the extremely generous list of things that trigger the $300 travel credit, or just in general making things more difficult to redeem, like AMEX typically does. The rumor about not being able to transfer UR points earned from the CF and CFU cards to the premium cards would be a major blow to many of us, but it might be a logical place to start… the CFU not so much, since they can still profit a little bit even with 2.25 cpp on the CFU, but when people have multiple CF cards and max the 5% categories, essentially getting 7.5 cpp minimum, I doubt that will last for much longer…

  2. Bungy says:

    5/24 seems backwards to me from their perspective. They are turning away a good amount of business by rejecting non-churners. 5 new accounts in two years is not crazy at all for a normal person. 10 is, 5 isn’t. I wonder if they track this data internally and silently wonder if 5/24 is actually hurting them.

    • Tony says:

      Yes, they are certainly turning away business, but it’s business they probably wouldn’t want anyways.

      And I can almost guarantee they have done quite a bit of in-depth analysis with proprietary data in regards to the 5-24 rule, analysis that is significantly more accurate than any of our guesses

      • FLL says:

        You overestimate Chase ability in its analytical ability.

        Had they have any such foresight, they would never have such fiasco on the CSR – let the blogs hype up the card, then reached its 12 months target in 2 weeks, running out card stock to print the card on, it goes on and on…

        There is not a single card in any issuer that sees its benefits cut before even reaching anniversary – yet that is what happens to CSR – the $300 travel credit has been changed to Anniversary based versus Calendar Year based, when the T&Cs changed just a little over 1/2 year from introduction, just as one example.

        As a stark contract, it took Citi 3 years to reduce Prestige benefits.

        • Elmer says:

          I think you are making a mistake by comparing Chase IT to Citi IT. Few banks are as unaccomplished in their IT and data analysis as Citi.

        • imperium2000 says:

          That’s actually a sign that they have pretty good analytics and impressive management response. They are responding way faster than Citi would to counter churners and travel hackers which are not the most profitable customers.

          When they first came out with this card, they were aiming to draw away Amex platinum and other high spend customers and lock in millennials who are into experiences and traveling. I doubt they expected the number of point maximizers and travel hackers that joined.

          I have little doubt all the other banks are considering ways to prevent this from happening in the future.

          • Mser says:

            Very few points maximizers qualified under 5/24. You are essentially a hacker noob if you don’t greatly exceed 5/24.

    • Jason Smith says:

      Besides for churning, what other reason would anyone need 5 credit cards in 2 years?

      Look at people who don’t churn – most of them have 1 or 2 credit cards and maybe got a new one every 5 – 10 years.

      They know, you know, and everyone knows there is only 1 reason people open lots of credit cards and it is to get the bonuses.

      • rick b says:

        some people fall for the trap of signing up for store cards to get discount on a big purchase. Those are actually the clients they’d want since they’re clueless. Also many first time gamers can’t be detected. If anything they should have stopped paying TPG and the likes to encourage herds of travel hackers to sign up all their family and friends.

      • jobin johnson says:

        Not really! I earn good to afford AF of BRG(gas station MS and normal spend), prestige(benefits) , premier(gas station MS and normal spend). I would not mind paying CSR AF as well. But i am lol/24 so thats the reason they are not getting my business.

      • Mo says:

        As far as real churning, 5/24 and 1 bonus per 24 take care of that (for most of their ‘important’ cards anyway).
        As far as signing up for bonuses, Chase doesn’t seem to care, since it usually means more spend than otherwise, as well as an increased chance that some may keep a balance.
        Also, those pesky annual fees are meant to keep those bonuses in check. You’d be surprised how many people pay af’s for years.

    • Sam says:

      It’s not just churners they don’t want, but anyone who is savvy enough to have a few cards for the benefits, spending bonuses etc that each one has to offer. They probably just want people who just use one or two cards for everything, so even if they have to pay out bonus points on travel, for example, they make it back on groceries.

    • mh says:

      ” 5 new accounts in two years is not crazy at all for a normal person.”

      Normal non credit card churners do not get five cards in two years.

  3. ChaseShutMeDown says:

    I was a long term Chase customer, however I was also a very early adopter of the reward game. I followed the 5/24 rules religiously on top of the business cards. And let me tell you how Chase is cutting cost: by shutting those deemed unprofitable customers down.

    In their terms, they can shut you down without giving you any reason. Harsh, but true.

    IMO, this needs to be regulated better because if a bank can impact your credit score, which is used almost for everything in modern day life, then they need to give rationale before taking action.

    But then again, who am I to judge a billion dollar bank?

    • Chuck says:

      Sorry to hear about your shut down.

      That is a good point. We’ve written a couple of posts about Chase shut downs. Let me add this to the post.

      • ChaseShutMeDown says:

        One thing I forgot to add is,

        Just because a customer not profitable, banks should not be able to shut them down and then impact them negatively. If there was a way to shut them down without impacting the credit score, I can see eye to eye with that policy.

        However even then, this type of practice needs to be made public and can be viewed by the public. For example, banks need to be transparent on why they are shutting someone down. If its due to compliance, then they need to show what rules customers have violated. If its because someone is not profitable, then it should be noted. This way the public can choose what banks to go with based on these data. But then again, when were banks ever liable for anything in the US history?

        The money is ours, how we spend our money is our business as long as we are not breaking the laws. Or is this just some fancy desire that is no longer true?

        • Chuck says:

          ChaseShutMeDown, based on a convo I once had with a Chase insider, I’m pretty sure that each shut down goes through an entire legal review, and they make sure their bases are covered.

          So, while it may be that they *take the initiative* to try shutting people down based on their profitability or lack thereof, they’ll only actually shut down if they have good legal cover for it.

          • Kp says:

            I am pretty sure the only ‘legal cover’ they had for shutting me down was a line in their T&C stating that they can shut someone down whenever they want without reason. I can challenge anybody at Chase to prove any wrongdoing or fraudulent activity from my end, and they would come back empty handed. Pretty sure that is the story of a lot of folks shut down by them.

          • Chuck says:

            Not fraud, but things like erratic payments or other behavior.

        • Eric says:

          Was it due to compliance? Did you receive a case number?

    • hiima says:

      How are you an earlier adopter and a follower of 5/24 rule?

    • PT says:

      I started learning a lot more about CC when I heard the Costco Amex was going away. I had only basic Visa and a Costco Amex, both long-term, and 800 FICO. My Visa issuer refused to convert my card to their 2% Visa, and Amex refused to convert my Costco card to another Amex, both to preserve my acct history/age.

      I determined from then on I would diversify to a lot more issuers with much better rewards so nobody could limit me or hold me hostage, such that I could easily switch to another card if I had problems with an issuer (& I never did get a Citi Costco card as I do well with non-cobrand).

      Even with clean credit files, my Experian dropped to 760 the next month after opening only two new credit cards.

      My experience plus all the shutdown stories about Chase & others etc just reinforces my conclusion to not put too much in one issuer so they can’t have too much effect on you.

      • Mser says:

        New accounts have little relative impact on your credit score. Likely your credit utilization percentage went up (which has much higher impact)

        • PT says:

          Your comment prompted me to look again at the numbers. It turns out the effect was lower than I thought as you mentioned because I was comparing different score variants from when I didn’t understand they were different.

          I readjusted to only look at true FICO 8 scores and it turns out I started at 795 Experian FICO 8 in June, and was 760 in August, so it DID drop 35 pts, BUT this was after 4 new cards and 2 hard pull CLIs.

          So, I guess it was a combination of having a very slim credit file (2 open accounts) and doing several new cards and increases in a short period of time.

    • NinjaX says:

      no clue what youre talking about. why dont you give us the details first before saying random facts about chase shutting you down because you were “unprofitable” and how youre the victim. money is yours and how you spend it is your business??? umm, maybe you should define long term and early adopter…

    • Mo says:

      Dude, you need to try and get your accounts reinstated. Just about all those on r/churning who reported getting shutdown got reinstated. Read up!

  4. Dean says:

    5/24 is mentioned in the article. Err, maybe get rid if it? Increase the pool of prospective card holders? Maybe some of them want to “settle down” after having “slept around” a bit. 5/24 is a dreadful policy, and it leaves me with a negative view of the Chase card brands.

  5. GLT says:

    “Seven years seems to me like a long time to turn a profit on a customer.”

    That’s not the time to turn a profit, just the time the expense is amortized over. They could exceed the acquisition cost in the first year but they’d still amortize that cost. 7 years does seem like a long time to amortized a card like this though, I bet they’ll take a writedown.

  6. JC says:

    According to CreditWise which is the free credit monitoring service offered to Capital One customers including banking only clients only 10% of people have 5 or more inquiries on their report in a 2 year period. Now, I realize that 5 inquiries is different than 5 new accounts in the previous 2 years because inquiries may show up on only 1 credit bureau thus allowing people to actually have up to 15 new accounts every 2 years. But even if we use the CreditWise number further down which is 3-5 inquiries in a 2 year period this would be at a maximum of 9-15 cards and this part of the population makes up 17% according to CreditWise. 73% of the people have 2 or less inquiries in the last 24 months which is a max of 6 cards every 2 years if equally spread across 3 bureaus. As such, while missing out on up to 27% of the population is huge, this is a stretch since inquiries are almost never that perfectly split between bureaus and some issuers pull 2 or 3 bureaus. As such, it would appear that Chase’s goal of eliminating churners with the 5/24 rule should be relatively effective which actually lines up with the 5% to 10% of people who shop around mentioned in the WSJ article above.
    JC

    • rick b says:

      churners often have extended family who are well outside of the 5/24 rule and the points are transferrable. They Will have to introduce really draconian rules to truly beat the gamers or completely gut the product. there are probably not enough clueless people who run the balance and pay interest in the target audience

    • Abey says:

      You can also get inquiries from other stuff
      Like opening a cellphone plan with a phone provider. Moving credit lines. Getting a car loan and so on.

  7. UPS guy says:

    Just goes to show you how competitive the CC market is. Taking losses for customer acquisition isn’t new, but with so much competition, you gotta tantalize somehow better than the next guy if you’re looking to pull from a market already (AMEX Plat). It will be easier to retain those customers you brought over now that they have a “vested” interest with their new reward currency, UR points. The question will remain if any changes are done to the CSR, will Amex, or someone else, Take the opportunity to pull customers over, repeating the cycle.

  8. Elmer says:

    Based on this, it should seem apparent to everyone why US Bank, BofA, UBS, and other “late entrants” to the premium cc tier aren’t interested in adding more benefits to “beat” Chase Sapphire Reserve, but instead are doing measured benefits that match portions of it and seem to be targeting their offers to segments of that market (such as their existing customers, etc).

  9. JG says:

    I think they should add a referral. That’s a lot of potential new customers convinced by friends or family without really knowing what they’re doing.

  10. Dima says:

    Not sure how Priority Pass deal is structured for Chase, but I can see them putting a cap on the number of guests like Citi and AMEX do. Cut to the 1.5x redemption is a possibility, but if they’ll start cutting too aggressively users might deflect to other cards and Chase will never recover their initial investment.

  11. Will Gu says:

    doubt about the “more reviews to weed out” part

    it takes man power to do that, and they will face scrutiny from regulator as well.

    it’s way easier for them to strip off some benefits (or create some caveats). Remember they make more money when you use less of the benefits.

    • Chuck says:

      True, each cardholder they shut down probably costs them a lot of man power. Fair point.

    • imperium2000 says:

      “More reviews to weed out” can be easily done by a computer. They may also just put restrictions on applying for CSR such as pulling all 3 credit bureau reports and/or putting a more restrictive application rule on CSR only such as a 4-24 or even a 3-24 unless you’re a long term Chase customer etc.

      Sign up bonuses are useful in drawing away customers from other companies. Benefits are what keep customers in their system. If they take away too much they could lose even high value customers.

      They could put in delayed or accruing benefits such as $100 travel credit on year 1 which rises to $150 on year 2 and then rises to the max after a few years. Annual minimum spend benefits are also a possibility. Some version of these already exist on many other high end cards such UBS Visa Infinite or City National Crystal Card.

      • Will says:

        you are right that they could potentially kick out some customers by querying the database, but I doubt any serious company would do that without some more thorough review on what’s going on.

        From their point of view, the philosophy should come down to understanding customer’s behavior and potentially improving their system. Although it wouldn’t surprise me if the traditional banking industry doesn’t appreciate this point as much as companies like Amazon or Google.

  12. David says:

    The whole world is moving away from CC. I don’t see a future of this market.

  13. Matthew P says:

    Why do you think they’ll keep the travel credit the way it is now? It’s almost comically easy to redeem as it is, the average consumer that travels at least once a year (their target demo) will do it by accident. Seems like the easiest thing to scale back, effectively makes their card $150 a year, significantly less than competing premium travel cards.

    • Chuck says:

      True, I just felt it was one of the basics of the card. Same as I don’t feel they’ll change 3x dining/travel.

    • MoreSun says:

      It’s super cheap for Chase to implement this way, all done via computers and the system is working practically flawlessly for them. They could make it more complicated for consumers to utilize hoping that less consumers use it but doing so will impose upfront costs on Chase. They’re trying to cut today’s costs so that doesn’t make much sense to me.

      (Admittedly much of this doesn’t make sense to me. Chase took a huge gamble, gained tons of clients, and 11 months into their grand experiment to find out if people will keep their expensive card Chase execs are getting cold feet?)

  14. NinjaX says:

    im waiting for the CSR AUG n00bs to chime in here and tell me again why their CSR is the ULTIMATE KEEPER card and will easily continue to crush US Bank, BofA, UBS Citi etc etc. tell me again please. i like hearing more about it.

  15. Lrdx says:

    So, the signup bonus probably won’t go back up any time soon. Not just to 100k, anything significantly over 50k.

  16. NinjaX says:

    anyone know how hard AMEX is laughing at chase right now? just curious if drunk girl is laughing too. im gonna find her in the MAC line this weekend and MAC on her…

  17. Lrdx says:

    Someone not NYT subscriber trying to read the article, it’s up on Fox Business as well:

    http://www.foxbusiness.com/features/2017/07/28/sapphire-reserve-cards-arent-very-rewarding-for-j-p-morgan.html

  18. Jags says:

    Chase will simply cripple their line of cards. Freedom Unlimited, Freedom, and Ink Cash will become cashback cards. They will not earn UR. This is where a lot of the problems are. They’re essentially giving. 2.25% minimum cashback up to 7.5% cashback for $150/yr.

  19. Randy says:

    I signed up for CSR on Jan of this year. I already used my $300 travel credit for this year and was planning to use it next year. Going by DOC article, I can’t do that anymore?

  20. Arafat says:

    Chase should launch the bonus for a car loan! If they give 100,000 UR points for car loan, I will definitely buy my dream car!

  21. KP says:

    Keep needing this card, Chase… By the time l’m able to get it (l’m 5/24) it may no longer be worth having.

  22. MarcoPolo says:

    So I assume the 100,000 CSR promo is not coming back?

  23. Rena says:

    Guess the bonus won’t go up to 100k again. Well, no CSR for me. I suppose I don’t need to mind the 5/24 now.

  24. Abey says:

    I find this part interesting.

    J.P. Morgan doesn’t disclose how many Chase Sapphire Reserve cards it has issued. The bank said it exceeded its 12-month sales target in two weeks and temporarily ran out of the metal used to make the cards.

    J.P. Morgan’s second-quarter card income, as reported, fell 15% from the year-earlier period to $1.06 billion. Credit-card account openings, excluding commercial cards, totaled 2.1 million, down 22% from the year-earlier quarter.

    • Troy says:

      That caught my eye, too. You’d think that if Chase blew its 12-month sales target in two weeks that its total account openings would be up, not down. Logic would then lead me to believe that Chase’s other credit card offerings what’s dragging that number down. And that, to me, would suggest that Chase should improve the benefits of those underperforming cards.

  25. Emmanuel says:

    CHASE! If you’re reading this! PLEASE TAKE ME BACK! I promise i’ll never churn your cards again CHASE! I just want my Ritz Carlton heavy metal card back so all my friends can think I’m cool and rich………

    • Abey says:

      When i started with credit cards. I applied for Chase Marriott for that reason. Its black metal and cool.

    • NinjaX says:

      would be really helpful if you told us your stats as a DP. u only mentioned churning. i have yet to hear pple get shut down for churning alone. its ALWAYS MS related. please let us know.

  26. Lou says:

    Outside of the gamers/churners, etc. – who is the card really good for? when there are so many options out there, what will make this one stand out?

    I see it as the same, if it’s no longer worth “saving” for – let the games begin again. Churn away to your hearts delight, 5/24 be damned.

    • Chuck says:

      I actually think it’s a solid card for travelers, even outside the churning world. Assuming we’d look at the annual fee as $150 after travel credit, it has no foreign transaction fees, nice travel and dining earnings, plus a host of other benefits.

Leave a reply

Your email address will not be published. Required fields are marked *. Please do not share your referral links/codes unless the post specifically states it's allowed. If the post states it is allowed please follow the rules carefully. If you'd like an image next to your comments please create a gravatar. Most of all please be kind and respectful to each other. 

Back to Top ↑