Why We’re Beating Chase With Sapphire Reserve

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The Chase Sapphire Reserve card offers 50,000 points after $4000 spend within 3 months; triple points on travel and dining; a $300 annual travel credit; unlimited visit and guest Priority Pass for airport lounge access; Visa Infinite travel protections.

It was supposedly a card that finally figured out how to attract millennials when the truth is it was just a card that offered more total value than most that had ever come before and whose initial marketing was primarily online so new applicants skewed younger.

The value was so rich that word on the street was Chase didn’t even ever expect to make money on a new cardholder until they held the product for 6 or 7 years.

This past week Chase revealed data on its Sapphire Reserve cardmembers and it points us in a direction of understanding the economics of the card. Bottom-line, we can pretty much figure we’re cleaning Chase’s clock because we pay off our statements on time.

To be sure I am shocked by 90% renewals. It’s a $450 annual fee card (albeit made a whole lot easier with a $300 travel credit). We’re only dealing with the card’s early adopters, there’s a limited number of early signups that have kept the card so far. But that 90% figure is high.

And it makes total sense to me. Chase is spending way too much on its cardmembers, the value proposition of Sapphire Reserve is simply too good. I do not believe Chase will ever make money on this product.

A little bit of cocktail napkin math suggests that Chase is spending roughly the card’s full annual fee on cardmember benefits, and rebating close to their interchange revenue to customers for their spending. That would mean they’ll only make money on a cardmember who pays interest on balances, and they need a lot of cardmembers to do that to ever cover their acquisition costs (like the signup bonus) let alone turn profitable.

  • There’s a $450 annual fee, but $300 is returned to most cardmembers in the form of a travel credit that applies to any travel – whether airfare, hotel, Uber, etc.

  • The remaining $150 is quickly spend on Priority Pass (a less generous card would retail for $395); the Global Entry/TSA credit (which costs them perhaps $5 per year on average); Visa Infinite benefits, and customer servicing and service.

If they’re not making money on the annual fee, what about interchange? Chase gives cardmembers 3 points per dollar on all travel and dining spend with the card. Each point can be spent for 1.5 cents apiece towards travel, or transferred to a variety of miles and points currencies.

I don’t know what Chase pays for United miles, which are presumably their biggest transfer destination.
Prior to American’s new credit card deal with Citi and Barclays the average sale price of their miles was a bit over 1.2 cents apiece, suggesting that banks were buying miles for less than that.
I think we can assume that while miles transfers are more valuable for customers in many cases, they’re also less expensive for Chase. So let’s assume an average redemption cost of 1.3 cents apiece.

Chase’s rewards costs depend a lot on what percentage of transactions are in the travel and dining category, and of course what percentage of points are never actually redeemed.

Let’s look at the average customer Chase tells us about.

  • $39,000 spend, assume 25% in triple points categories, yields 58,500 points at a cost of $760.50
  • For simplicity let’s say Chase earns $780 off that $39,000 spend.
  • Any margin would have to come from breakage, but is sensitive to whether customers spend more in the travel and dining categories and whether redeems cluster around costlier rewards.

If Chase’s acquisition cost at 1.3 cents per point costs them $650 they’re going to need a lot of customers to revolve balances before they ever make money on the card but at $180,000 annual income and 785 FICO scores you’re not getting a lot of customers who revolve.

Singapore Airlines Suites

Obviously the numbers in this post are rounded and speculative. I’d posit though that it’s the same sort of hypothetical exercise that went into the bet about earning back acquisition costs from customers after 6+ years.

Chase has a great talking point that 90% of customers are keeping the card. That helps them make the case that customers will be around long enough to pay back the bank’s initial investment.

But it seems clear they can only make money on customers who fail to pay off their balances and pay interest. Yet the customers they’re attracting with the product seem far less likely than average to do that.

Of course that’s increasingly the case with all of the major rewards cards. Banks used to make money on interchange and then APR was gravy. However co-brand deals have gotten so expensive post-Costco that all that’s left is the APR. That’s similar to cards in Europe and Australia (with less lucrative cards) where interchange is capped, and issuers have to live off of the lending component of cards.

And that means everyone who is paying off their cards in full each month is beating the house.

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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Editorial note: any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Comments made in response to this post are not provided or commissioned nor have they been reviewed, approved, or otherwise endorsed by any bank. It is not the responsibility of advertisers Citibank, Chase, American Express, Barclays, Capital One or any other advertiser to ensure that questions are answered, either. Terms and limitations apply to all offers.



  1. To do this calculation properly shouldn’t you be including the fees Chase gets from the merchant side?

  2. I bet some are not taking full advantage of the $300, some are probably paying a small amount of interest, for example balance transfer deals, etc, and some small amount of cash advances for convenience (even if you have the cash somewhere). Some may add to the their relationship with Chase. All of these should help slightly, but agree it’s tough to overcome the cost of the savvy holders.

  3. @Christian I was just wondering the same thing. Seems like that part of the equation is totally overlooked. Do these guys that write about this sort of thing never consider the merchant fees that would otherwise be going to a competitor?

  4. You would be surprised about the relationship between income and revolving balances. The largest and most profitable bank in the country didn’t get there by accident.

  5. Seems like one of Chase’s main goals was to bring more Private Clients in. If those numbers are accurate, and the average income of the cardholders is $180k, then I’d be willing to bet they achieved that goal.

  6. Having worked at Chase, don’t forget the importance of cross-sales. If you get millennials into the Chase ecosphere early, you may also get them for mortgages, auto loans, checking (and Chase Private Client), etc.

    Also, Chase doesn’t make money on the majority of their new card customers for at least 3-5 years…

  7. @Ed I’m not sure what the fees are but I heard around 2% so if we assume someone spends $39k with Chase due to the card instead of AMEX then that would be $780 in merchant fees which would change the value proposition for Chase.

  8. @Mike L makes a great point. If they are able to get more banking relationships with high net worth clients because of the card, the will make money in other areas.

  9. And I’d add that one thing about bank points is that the bank doesn’t have to “pay out” right away. If they were awarding UA miles for example, they’d have to pay UA to award the miles. But since this is UR points which belongs to the bank, they don’t “realize the cost” of the UR points until someone redeems it. Many people would probably just be keeping the UR points for their “next big redemption”, at which time the airlines would probably have devalued their FFPs even more.

  10. I’ll bet that half, or fewer, of card holders activate the Priority Pass. I also wouldn’t be surprised if they didn’t wind up paying for people who never use the Priority Pass.

    Plus don’t forget the authorized user cards — probably largely free money for Chase (assuming it doesn’t lead to a lot more Priority Pass entries).

    Still, yeah — seems like a Priority Pass membership plus 3x points is a bit of a rich payout for $150 a year.

  11. Chase has repeatedly said that they consider this product a success, so I doubt the numbers you are stating are correct. They would not consider it such a success and plan on expanding if they weren’t making serious money.

  12. I agree with Gary that “… everyone who is paying off their cards in full each month is beating the house” of course, if that person is spending ca. $40K on the card including a large portion of travel.
    However, what we do not know is the income from revolving balances. Note that customers with FICO of 785 are likely paying at least some minimum balances. These are the best customers because many will pay the dept eventually or at least will try to pay.
    Lower FICO customers are more likely to drop the CC payments completely. The bank would send a few letters about account closing and then simply sell the dept to a collection agency. The typical price would be 40-45% of the outstanding balance resulting in a quite substantial ($1K-$2K) loss per customer. And this will be in addition to a hefty upfront cost to acquire new customers.

  13. I think 1.3. cents cost per point redemption is high. I think they pay far less than than for miles from airlines. I’m sure a lot of both credit card and subsequently purchased airline points go unredeemed, or redeemed for cash (penny a point), or redeemed for gift cards (less than penny a point).

    The rest they make off of the schmucks who carry a balance at 18%

  14. I fit Gary’s profile pretty closely, except that about 80% of my CSR spend is in 3x bonus categories. So it’s really hard to see how Chase will ever make money on my account. (Most of my un-bonused spend goes on CFU or SPG Amex. The only reason any significant un-bonused spend goes on CSR is that Road Scholar trips do not code as travel, but I want the trip cancellation coverage so I use CSR. I bet that, for many like me, 95%+ of CSR spend is in 3x categories..)

  15. I think lots of people redeem most or all of their points for cash so The UR value isn’t as high as it would be for most readers here. Plus Chase pulls UR out of thin air. Maybe they sit on their balance sheet but there’s no opportunity cost like there would be with an immediate payout.

  16. @UAPHIL

    You’re dead to us. ==JD

    One would think banks were disabused of the whole cross-selling argument after Citi -Travelers didn’t work out. All the banking mergers were sold on that basis. It didn’t work. Unless , of course you were Wells and just created the cross-selling accounts anyway

  17. @Rrgg said: “Plus Chase pulls UR out of thin air. Maybe they sit on their balance sheet but there’s no opportunity cost like there would be with an immediate payout.”

    Actually there are two sides to the accounting entry which puts the liability on the balance sheet.
    ( of course bankruptcy gave the carriers ‘fresh start’ accounting .)

  18. Two reasons I think retention is so high is people like myself that got the 100,000 UR point bonus and haven’t used them yet and to get the 1.5x. I think the profitability will go up in year two since a higher percentage of people got the Global Entry or TSA credit that they won’t have to pay in year two. The net $150 is nothing compared to all the benefits. Also I think a very small percentage of people are getting 2 or more new cards each year as they don’t want to wreck their credit rating.

  19. I think the math is really lacking here and is full of assumptions. I’m willing to be most of these people with this card are redeeming for cash or subpar transfer values. Yea Chase may be losing out when it comes to those of us who are well versed in min/maxing our credit card use but that is an extremely small percentage of people. Then when you factor in cross-selling other products to card holders they stand to gain quite a bit. Sometimes you need to step back from the points world where you are soo focused and look at the big picture and understand very few people use cards the way you do.

  20. I have some family that only have one or 2 credit cards, travel couple times a year and Cary a balance on some big items then payoff when they can, This is normal, most people are not point snobs like us, most don’t care and unwilling to do simple research thinking the free trips they want are to hard to get like 1/4 million points I need for Paris but to maximize my redemption I need card 1 that gives me 1.5 points or 1 point with this card or a star point that = to 3 Marriott point that I then can book a travel package @ 270k then transfer to United for 132k to maximize. No, most don’t think the way we do, we are only 1/3 to 20% that likes reading a travel credit card blog @ 1 o’clock In the morning.

    From 19 to 31 I only had one credit card, every trip every expensive item every piece of furniture we charged on it, I kept it because it was cool looking, discover card with the American flag, I thought all cards are basically the same nothing special I just liked its look, now I have 40+ accounts and use my CSR @ Dunkin’ Donuts for a $2 coffee to maximize my return, I barley use pocket money anymore feeling I will miss out on points

  21. Chase is not dumb, they know that some section of customers will never carry a balance. Their goal is to get customers in the door and to keep them. They’re clearly willing to take a loss on a product like CSR to do this. And I fit in here pretty well. I’m willing to keep the card even though the Priority Pass is hardly ever used. I recover enough value in 3x categories, though I’m probably slightly at a loss over the CSP. I’m > 830 credit score but my income is below the avg they listed. I never carry a balance and only use the card for 3x category purchases. They’re making very little off me yet I’d still say they’ll consider me a successful customer for them. And they’ll continue to eat costs in order to, if nothing else, keep business away from competitors. Chase knows the customer set they want.

  22. @UA Phil, message/email Road Scholar to correct their vendor code. I have had to do that for a few travel suppliers. It is usually a mistake that they don’t know about.

    As far as Chase making money. The calculations are being based on known retail info. Chase is not paying retail costs for anything. Not for Priority Pass, miles, assumed interchange fees. None of it. Chase took a calculated risk to gain millennials as customers. It is a long game. No one even takes into consideration that Chase Private Client/Banker don’t pay for these cards. Too much speculation here and maybe some subconscious innuendo to provoke readers to apply for a CSR card.

  23. Interesting statistics. I put around $100k annually on the CSR last year (spend that previously used to be split between the CSP and other cards), which is 99%+ either 3x bonused (travel/dining) or foreign currency spend (no FTF). My total USD denominated non-bonused spend on the card was only $163.98 across 11 transactions.

    Conversely, I put around 75% of my non-bonused USD spend on the Freedom Unlimited. The remaining spend was on various other loyalty cards (eg. Hilton hotel spend goes to Hilton cards, etc..) or to meet minimum spending thresholds for bonuses.

    Chase has really locked in my spending with the CSR and I have multiple friends and colleagues who have a similar spending pattern.

  24. @Bill I actually have built spreadsheets on this that I didn’t publish in the post. While there are indeed lots of assumptions they’re all reasonable or generous towards Chase. I have no doubt they are spending the full interchange on customers and can only make money on the revolve.

  25. @Steve there’s 1.5 cent redemptions on airfare, their cost of united miles is up [in 2017 they used the last of the low-priced miles they prepurchased and the current rate is based on the new more expensive post-Delta/Costco deal].

  26. There’s a reason Amex Platinum makes you choose one airline, doesn’t reimburse all travel expenses, doesn’t let uber credits roll over, etc. The point is to have a benefit they can advertise but that people don’t take full advantage of!

  27. @UAPhil you said you used CSR to get trip insurance on Road Scholar trip. As you said, Road Scholar codes tours as education and you do NOT get trip insurance. Wish you did!!

  28. I think i recall that the person who developed this program at Chase was let go or had left their position.

    From a business perspective, Chase would have been much better off building a relationship bonus component similar to Wells Fargo or BOFA.

    People like @Sean above or those who pay T&D with OPM are making out like bandits – and good on them for doing so.

    Chase, feel free to hire me (for a hefty fee) to tell you that you’re doing it wrong.

  29. I think people would be surprised

    1) at % that carry some balance at least for a month or two
    2) people that do BT at 3-4% transfer fee
    3) cross-merchandising (private wealth, mortgages, etc)
    4) other things that make chase money

    They wouldn’t still be offering a 50k bonus signup with 10k bonus referral if it wasn’t in the wheelhouse of profitability

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