Chase Lost $200 million On Sapphire Reserve, CEO Wishes It Was More

CreditMunich
Rank: Orangutan | banana points 312

Now that we know what the monkey's credit card of choice is, I thought it would be interesting to see why Chase is offering the Sapphire Reserve in the first place. The fact that the card is losing Chase money is clear, however Chase CEO Jamie Dimon spoke about this loss in a strange way:

"The card was so successful it cost us $200 million, but we expect that to have a good return on it," he said in the interview. "I wish it was a $400 million loss."

What is this good return the CEO is talking about, and why is he so happy about losing so much money? Is this a win-win, where Chase will be able to rake in more vendor fees with more users, and thus offer better deals to cardholders? Or are there ulterior motives? Let's take a closer look. According to the article:

Comparing pre-Reserve spending in July 2016 by existing Chase customers with post-Reserve spending in December 2016 ... spending increased more than 50%.

So customers who switched to the Reserve increased their spending by over 50%. It seems to me that the "savings" of the card are being outweighed by the increased consumption.

What are your thoughts on this, and the problem of spending more to save more?

Link to the article: JPMorgan[/embed]just revealed the logic behind the crazy popular Sapphire Reserve card

Comments (5)

Best Response
Mar 4, 2017

The model of Chase Sapphire Reserve is to attract high clientele that can afford the $500 annual fee. Yes, this means that Chase is losing money on the perks of the card (100,000 points, $300/yr in travel, 1.5x travel when you use points, etc). Additionally, the demographic that is attracted to the Reserve is not the type that will carry a balance and/or have to pay interest fees.

Herein lies why Chase values the card - they're sacrificing the losses outlined above in order to attract new customers. Just the same way that Uber will give you $25 to create an account (whatever it may be). The point is - Chase is looking at the term term picture and hopes that these customers will ALSO use Chase for it's other services - refinancing loans, financing their mortgage, provide a small business loans, etc.

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Mar 4, 2017

That's a good point on the macro-level of Chase's model. What I'm also interested in is that the card was being hailed as such a good deal in the other thread. Perhaps it does save you money with the perks, but if your consumption increases 50% that doesn't save you anything!

Mar 4, 2017
Kgoar:

Comparing pre-Reserve spending in July 2016 by existing Chase customers with post-Reserve spending in December 2016 ... spending increased more than 50%.

This number may be skewed by new card members accelerating their purchases in order to hit the minimum spend requirement ($4000 within in the first three months to get the 100,000 point bonus). If this is the case, the 50% spend increase is likely temporary.

Mar 4, 2017

That's a good point, and could potentially skew the numbers, although the article said the average income of a cardholder was 188K so I'm not sure it would alter spending that much.

Mar 4, 2017

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