Chase Takes $330 Million Charge Due to High Cost of Points Redemptions

I receive compensation for content and many links on this blog. Citibank is an advertising partner of this site, as is American Express, Chase, Barclays and Capital One. 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). Terms apply to the offers and benefits listed on this page.

I’ve written that I don’t believe Chase can ever make money on their Sapphire Reserve product. They appear to be spending the entire merchant swipe fee (interchange) on servicing and providing benefits and rewards to customers.

Any upside — indeed, even covering the cost of acquiring cardmembers with signup bonsues — would have to come out of revolve, from interest customers they accrue when they don’t pay off their cards. But with 785 average credit scores and $180,000 average incomes it’s not likely they’re getting all that much revolve.

Now Chase has shared that they’ve taken a $330 million charge in the second quarter for higher than expected redemption costs.

Chase’s take? We lose money on each customer, but we make it up on volume.

J.P. Morgan’s [Chief Financial Officer Marianne] Lake said that the recent charge, coming from Sapphire and other cards, is a good thing because it shows how engaged users are.

The cards division has seen strong loan growth, modest charge-offs and record low attrition rates, she said, alleviating fears from some analysts that customers would stop using the plastic after redeeming the sign-on bonus.

Chase’s card customers, especially those picked up in the last couple of years, have strong spending patterns, Lake said. “Engaged customers bring us more spend, they bring us more of their share of wallet.”

Naturally, Saturday Night Live‘s First Citiwide Bank comes to mind,

Paul McElroy: A lot of people don’t realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels – we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You’d be amazed at the variety of the options you have.

Customer #3: I was driving through Pennsylvania on the tollway, and to save time I was using the exact-change lanes. I had just run out of quarters, and I was getting a bit nervous when I spotted a sign for a Citiwide branch at the next exit. Let me tell you, it was a pretty good feeling.

Paul McElroy: I have had people come in with wrinkled ten-dollar bills to exchange for new crisp bills to put in birthday cards. We can handle special requests like that, usually in the same day.

Customer #4: I’d just returned from a business trip to London, and all the cash I had was a five-pound note. Citiwide wasn’t able to convert it to dollars, but they did give me four guineas, two crowns, four shillings, and ten pence.

Paul McElroy: All the time, our customers ask us, “How do you make money doing this?” The answer is simple: Volume. That’s what we do.

The truth is that this is a golden age of credit card rewards — not for signing up for cards just for the bonuses, but for actually being rewarded for using cards. At the very top end of the rewards market banks are spending more than seems rational on points and benefits in order to attract our business.

(HT: Jonathan W.)

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, 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 »

More articles by Gary Leff »

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. I love my Reserve Card and Ultimate Rewards. When I read articles such as this, I get worried that the program will not last in its present form.

  2. I’ve been using the Chase Ink Business Plus card for a while (thanks Gary for pointing it out a while back), and Chase just did something very annoying: it no longer works smoothly with Quicken. Instead of participating in the one-step-update which it used smoothly for years, that stopped working a month or so ago, and now I need to download a file (many clicks) to get my transaction updates into Quicken. A major pain that I don’t have the patience for. I was on the phone with customer support for hours with Chase, and confirmed that this is a feature that they’ve decided not to support anymore.

    I’m looking for an alternative that works smoothly with Quicken, has primary insurance with car rentals, and good points benefits generally (in that order). Any suggestions anyone?

  3. I download multiple cards into quicken with no issues. I don’t think Chase changes anything. I think you have a localized problem.

  4. So that makes the CSP an even bigger money loser, based on the many BA blogs that conclude the CSP is the best value card?

  5. We know that this is an inevitability, so how about venturing educated guesses as to how the program will be downsized?

    My guess is that the first to go will be cross-conversions across non-UR cards.

  6. I got the CSP when it came out, and now it’s the only card I use and I’ve stopped playing the revolving door credit card game. I can’t be the only one and Chase has to consider that a win.

  7. @Jimmy, I am another one who stopped playing the revolving-card-game. Yes, I will still occasionally do a new signup bonus, but for the most part, that is behind me. CSR is my primary card of choice, no question. And it seems the low attrition rate shows I am not the only one who thinks this way.

  8. It used to be the airlines subsidized the “frequent flyer game,” giving you way more than you paid for if you played the game well. Those days are basically over: thinks like revenue-based programs and stingier award seat allocation killed it. Now it’s pretty obvious that its the credit card companies whose largesse allow this blogger (and most of the rest of us) to live a travel life way beyond what we’d be willing to actually pay. I have a bad feeling that just as the airlines figured out how to limit the gamers, the credit card companies are now figuring it out. Since there seem to be billions at stake, my guess is they will succeed, at least to a large extent.

  9. The theory is synergies, right? You want to get those 785 FICO/180K income customers into your ecosystem so that you can cross-sell them mortgages, private banking services, wealth management, etc. Whether the theory gets born out in practice, and how much of a loss on the card-side you can cross-subsidize with sales of other products, I don’t know.

  10. I’m probably a slightly above average customer of CSP as I control our business spending. I have one Chase card for our $4k /month cell phone bill – that card’s been wracking up 20k points/month for a long time. But on the other hand, they get our regular business cards it would be nearly impossible to ask employees to use 3 different cards of about $30k/month. So they definitely take a loss on the 20K UR points on one hand, but on the other hand they’re making it up on the other side with some decent volume.

Leave a Reply

Your email address will not be published.