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After Chase introduced their Sapphire Reserve Card they immediately took a $200 – $300 million hit to their bottom line. Even though Chase leases the Visa network, paying a flat fee instead of per transaction, they were spending a ton of money acquiring customers. In my view too much to ever make back.
They took another $330 million charge in the just-completed second quarter for rewards expense.
Chase has revealed a lot of data around its new cardmembers and they’re affluent, good credit score, high income customers.
The thing is that Chase is spending so much on rewards that they’re likely giving back all the revenue from merchant swipe fees to the customer or servicing customers. Traditionally the only way to make money then would be on the revolve (finance charges from customers not paying their balances) but they’re acquiring customers least likely to do that.
The strategy then for making money on affluent customers moves to cross-selling, which is why they’ve offered points bonuses for new mortgages.
Now they’re moving to the next stage, taking the Sapphire branding and putting it onto a perk-rich checking account designed for new affluent customers who do not yet meet the target for Chase Private Client banking.
Copyright: jetcityimage / 123RF Stock Photo
Doctor of Credit has many of the details on the new Chase Sapphire Banking which launches August 27.
- Chase Private Banking is their relationship geared towards customers with $10 million or more in assets with the bank
- Chase Private Client is their relationship geared towards customers who have $250,000 or more in assets with the bank, although an account can be opened with less if the banker believes the customer can and will get to that goal within a year (and these assets can simply be moving existing mutual fund investments).
- Chase Premier Platinum Checking is their premium account product that appears to be getting a refresh and rebrand as Chase Sapphire Banking.
The new Chase Sapphire Banking is targeted at customers with between $100,000 and $250,000 in balances at the bank, and a $25 monthly fee applies for customers who don’t meet $75,000.
At this level you don’t pay fees for most things — checks, foreign transaction fees, out of network ATM withdrawals (and the other ATM’s fee gets reimbursed), wire transfers or stop payments.
The product should be more self-serve than Chase Private Client, with an emphasis on mobile. It may come with some discount investment trades, and may come with an initial bonus. They’d be silly not to offer something here, in the currency their customers already value. However we’ll have to wait closer to launch to learn more. Since fewer than half their Sapphire customers have a banking relationship with Chase at all, they see a real upside.
It’s not going to make sense to leave $75,000 or more sitting around in a low yielding account in order to get these benefits but it could make sense to consolidate investments in a Chase account in order to build this relationship. Chase isn’t going to make much money if all you do is move in mutual funds and don’t let them manage your investments.
Some Chase bankers may not be as interested in that business, though I’ve also known Chase bankers happy to open a Private Client account with a $1000 initial deposit on the bet they can build a relationship. We’ll have to wait until the program’s launch to see how amenable Chase is to different kinds of business that qualify in this range. My guess is the initial push will be for customers, converting cardmembers to a broader banking relationship, so at least at the outset they may be more flexible.
I guess why would anyone use these banks for Investments let alone investment advice? Fee on fee on fee – save yourself time, $, and a headache and head over to Vanguard, Schwab, or insert discount broker name here. – the majority of the guys selling this stuff don’t know a thing about investing. If I’m not mistaken Chase currently offers 1 bps on their savings account which is embarrassing.
I don’t think this will take off with millennials. I keep minimal money in my checking and don’t want to worry about some minimum balance to not pay a fee. My brokerage account is with Wealthfront who has a flat staright forward 0.25% fee (I don’t see Chase being that straight forward).
I bank at USAA and more recently have opened a brokerage with a joined bank account with Schwab. I have no minimum at Schwab to get zero foreign transaction fees. ATM fees, including foreign fees, are reimbursed. USAA reimburses domestic ATM fees but not foreign ATM fees.
My wife and I have two millennial sons. We also don’t like to keep a lot of money in a low interest checking account. We usually keep only between $10K and $15K.
We do have several Chase credit cards – IHG, Marriott, CSR, Freedom, Freedom Unlimited and Amazon.
Would Sapphire banking earn ultimate rewards points? If so, I could see this being a good marketing tool. Once you’re in an ecosystem that is cross-functional across platforms (e.g., Apple iPhone/Mac/iPad with iCloud and iTunes), it’s pretty sticky and appealing. I for one have stuck with my iPhone over multiple generations because it is seamless with my iPad and Mac. A checking account that integrates well with my Freedom Unlimited and Sapphire Reserve is appealing. The question is at what cost.
I use Bank of America and Citibank to clear checks, make payments, accept incoming ACH’s and provide global ATM access. They are barely able to perform those functions. My accounts get shut down for suspected “fraud” on a monthly basis for things as simple as buying lunch in my company cafeteria. I need to speak to India to get account access restored. I would never choose a big money center bank to handle a mortgage, a mutual fund account or anything more complex. I keep virtually nothing in my accounts. Good luck with your plan Chase. Count me out.
@Rjb: Chase is far more competent than Citibank or BoA – their checking account is actually very good.
Since you can get private client with less than 100k in investments, I’m not sure why this Sapphire Banking would be useful. Also, the brokerage has the most horrible fees, compared to Fidelity or Schwab. $30 per trade? You’ve got to be kidding!
FYI if Chase follows current practice (highly probably) the $75k is assets which can be IRA, CDs anything. Think about it nobody is going to keep $75k in a .01% APR checking account in order to get a few free ATM withdrawals. Not too different than current CPC CPB accounts. Personally I value these perks at $100 or so per year so as you can get most for free at Schwab Bank (except safe deposit). And if you have $10MM you will go to JPM, not CPB. DrofCredit has great blog but knows credit not banking.
Unlikely this will work for millenials – if they had $75k they would buy houses instead of living at parents and paying student loans.
As for comparison, used to have accounts at all the major banks. Wells has by far the best customer service but serious ethical issues. Chase is #2 and somewhat more customer friendly (no garbage fees, e.g. forex, ATMs) good rewards, no 2-day float to process billpay, etc. Citi is okay (good billpay, bad branches). BofA is by far the worst of all.
As a “millennial” I don’t even get what’s the point. I just keep all my money at Schwab and get all the banking perks for free without a minimum. The funds beat anything Chase offers and any savings I want to keep somewhere less volatile I put into a high yielding low fee money market fund. Seems to me like these “private” banking products are just a stupid ”aspirational” status symbol targeting “millennials” like all the wellness crap out there. Though I’ll be happy to sign up for any bonus if the money I can make off it beats any opportunity cost and I can easily switch back to what I was using before after getting the bonus.
@Ray Totally correct. I use Schwab and Ally bank. I have a Chase account that I keep only because it’s free with direct deposit. I use it for occasional foreign wire transfers but haven’t done one in years. Ally bank can complete ACH transfers to many places in one business day. Money Market there is up to around 1.8%. Schwab has many advantages as well. Like their credit cards, but as a bank, Chase offers nothing of interest unless I needed to deposit cash.
this seems to just be playing “catch-up” to the offerings Bank of America already has at the $100K level . . . even just having IRA investments at the $50K level or higher gets you perks such as free trades, fee-free ATMs, etc. with more perks at the $100K level
The biggest thing they’re offering is waiving fees on certain transactions with checks and cash?
How does this make sense to them? The credit card product, and demographics, all target people who primarily use plastic for transactions. I’m not sure how building an entire customer base centered on using credit/debit/mobile payments is going to be convinced on saving on checks.
There may be some value in the ATM fee refunds, but the offer is widely available — I use a credit union that gives me 12 such refunds per month and has no foreign transaction fees, and they require no minimum balance or have fees. Certainly not worth a $25/month fee or idling $75k with minimum yield.