People Aren’t Cancelling the Sapphire Reserve Card like Chase Feared

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When Chase came out with its Sapphire Reserve Card some analysts thought the acquisition costs (signup bonus) were so high, and features so right (limiting margins) that it would take 5.5 years for the issuer to break even on a customer.

If customers didn’t stick with the card and spend on it, it would turn out to be a money loser — significant because the bank even disclosed to the SEC that its acquisition costs could be as much as $300 million higher than expected due to the card’s popularity.

Now that the card is a year old, there’s been trepidation over whether consumers who initially received 100,000 points as part of the signup offer would keep the card. For heavy spenders in the travel and dining category, and who make use of the Priority Pass benefit, I think it’s worthwhile — a $450 annual fee, offset by a $300 travel credit — but not everyone would necessarily take that view.

In fact Chase says the card is doing better than expected and certainly better than feared.

“Sapphire Reserve card spending and engagement is very strong and we’re very pleased with it,” Lake said. “Growth is offsetting the impacts of the significant upfront investments in the Sapphire Reserve, so we’ll see revenues grow from here.”

According to Chase’s CFO attrition rates are lower than they had anticipated.

And while they don’t break out performance by card product line, spending on all Chase cards rose 13% year-over-year and total card revenue is up 3% to $1.24 billion.

Chase has a practice of cross-selling products. Their long-standing heavy emphasis on branches has been an attempt to gain all of a customer’s business (though some brick and mortar branches are closing as customers interact more online). We’ve seen mortgage offers with 100,000 Ultimate Rewards points, and checking account bonuses for cardholders as well. That helps.

And of course Chase has leased Visa’s network for a big up front fee so the more charges customers run through cards the more the bank makes (and they can afford rich rewards) without the same interchange costs at the margin that other issuers face.

Now that the signup bonus is ‘only’ 50,000 points after meeting qualifying spend, I think the best play is to get the Chase Sapphire Preferred Card first. It has a 50,000 point bonus after $4000 spend within 3 months and also awards 5000 points for adding an authorized user to the account and making a purchase within the same time period. The annual fee is $0 the first year, then $95.

The Reserve’s $450 annual fee is a stopper for many people even where the value proposition is strong. That’s intentional on Chase’s part, charging a big fee and then offering a big travel credit, because they want to filter for people who will put significant spend on the product. I think it’s worth viewing the Chase Sapphire Preferred Card as a starter card for most, seeing the value in the points, how useful they are come redemption time. And once the value proposition is proven it’s worth considering Sapphire Reserve.

Sapphire Preferred earns double points on travel and dining while Sapphire Reserve earns triple points in both categories.

Bear in mind of course that you can’t just sign up for both, have both open, get both bonuses. The Sapphire Preferred bonus is slightly bigger with the authorized user bonus, and of course it has that $0 first year annual fee.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. 1) I wonder how this will look after the first of the year when lots of churners get the travel credit and product change to get a pro-rated annual fee back. I bet some stick around though. I’ve got two cards and I’ll be cancelling one and keeping the other or the foreseeable future.

    2) You can get bonuses for both the CSR and CSP as long as you apply for them both at the exact same time.

  2. I have renewed mine, happily. It’s a good card and as AMEX reduces reasons why you should carry their the Sapphire looks better and better. And maybe after all the churners leave Chase can work on the benefits for the real card holders

  3. It is easy to justify the Reserve Card if you travel a lot. 3x points goes a long way and the $300 travel credit goes a long ways.

  4. Had Chase not implemented the ONLY ONE Sapphire Card policy to re-empt the exodus, I would bet that the attrition rate would be much higher.

    It is a planned move implemented immediately on Aug 27 – right around the anniversary of the CSR which IIRC was first available to apply on Aug 21 or 22.

    We had 2 in the household and had no hesitation to cancel one. Most likely would cancel the other one at 2nd anniversary – as by then, unless policy changes again, would qualify for another Sapphire(s) with the bonus(es).

  5. The 3x dining/travel make it a solid keeper card, especially with the $300 credit that’s nearly automatic to take advantage of. There’s no reason to downgrade it to the Sapphire Preferred if you’re going to keep spending on it, as the break even points are almost identical. The new one sapphire rule means that anyone who has a CSR can’t get the signup bonus again until next year anyway.

    I’m keeping mine for a second year. I’ll make the decision on it next summer.

  6. It’s my daily driver (along with freedom and freedom unlimited). I’ll gladly pay the annual fee on this card.

  7. I don’t hold any grudge against the blogosphere business model, but let’s be clear that the bonanza of the CSR or even the CSP is unaffordable or even unwarranted for the majority of Americans aside from the first year signup bonuses.

    PSA: There are excellent no annual fee credit cards where you will come out ahead based on your average spend as compared to any annual fee you put in.

  8. I find the CSR way more lucrative than Amex Platinum, even without the big sign up bonus. At 3X for travel and dining, the annual $300 travel reimbursement, that is way better than 5X times for airfares. If you buy business class seats and are reimbursed by your employer, than the Platinum is more lucrative. But I don’t have that arrangement.

  9. As someone who got “screwed” (and is still ticked off about) by the 5/24 rule — the CSR was announced AFTER I was already over 5/24, and so couldn’t get the 100,000 point bonus . . . NOR the 50,000 bonus . . . and now, if I upgrade my CSP to CSR, I won’t get ANY bonus! — I am *still* tempted to upgrade anyway . . .

    I look at it as adding $55 to my AF (after the $300 travel credit) from what I’m paying now, and I’m pretty sure that the 3x points will add up rather quickly. I’m going to spend the $$$$ anyway; might as well get 3x (rather than 2)

  10. Jason Brandt Lewis if you drop below 5/24 then downgrade your Sapphire Preferred to a Freedom or Freedom Unlimited, then apply for Sapphire Reserve. You should get the bonus and you can move your Freedom points over to the Reserve.

  11. My wife and I each picked up a CSR with 100k bonus. She canceled after 1 year getting $600 in travel credit and paying $450 for the first year fee. Not a bad deal.

    She has since picked up the Ink with 80k bonus. I kept the CSR. We channel our spend between each to maximize multipliers.

    Now if Chase would only create a newer better version with bigger features and some weight to the card like the Ritz Carlton product, then we’d be talkin!

  12. Chase no longer prorates AF when cancelling card. You only get a full refund until first statement date, then no refund. Told this when calling Chase rep at CSR.

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