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

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Lou
Lou (@guest_449310)
July 30, 2017 07:16

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.

Emmanuel
Emmanuel (@guest_448985)
July 29, 2017 08:37

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
Abey (@guest_449074)
July 29, 2017 12:49

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

NinjaX
NinjaX (@guest_449203)
July 29, 2017 20:50

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.

Abey
Abey (@guest_448918)
July 29, 2017 01:22

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
Troy (@guest_449402)
July 30, 2017 12:56

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.

Rena
Rena (@guest_448761)
July 28, 2017 18:28

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.

MarcoPolo
MarcoPolo (@guest_448748)
July 28, 2017 18:08

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

William Charles
Admin
July 28, 2017 21:24

Doesn’t look like it.

KP
KP (@guest_448727)
July 28, 2017 17:16

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.

Arafat
Arafat (@guest_448726)
July 28, 2017 17:15

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!

Abey
Abey (@guest_448928)
July 29, 2017 02:02

I leased a car and used Chase for the loan.
They gave me a low interest rate since i have a good relationship (credit cards) with them.

Elner
Elner (@guest_448957)
July 29, 2017 05:13

That’s an Earth-shattering comment…

NinjaX
NinjaX (@guest_449265)
July 30, 2017 01:31

haha. she means well…

Randy
Randy (@guest_448681)
July 28, 2017 16:12

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?

Randy
Randy (@guest_448698)
July 28, 2017 16:35

Awesome. Thanks, Chuck.

Jags
Jags (@guest_448672)
July 28, 2017 15:56

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.

Lrdx
Lrdx (@guest_448665)
July 28, 2017 15:48

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

Lrdx
Lrdx (@guest_448679)
July 28, 2017 16:06

*WSJ