The Chase Sapphire Reserve® 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 welcome 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 welcome 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!