I receive compensation for many links on this blog. You don’t have to use these links, but I am grateful to you if you do. American Express, Citibank, Chase, Capital One and other banks are advertising partners of this site. Any opinions expressed in this post are my own, and have not been reviewed, approved, or endorsed by my advertising partners. I do not write about all credit cards that are available -- instead focusing on miles, points, and cash back (and currencies that can be converted into the same).
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.