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The Wall Street Journal reports that people inside Chase are concerned their Sapphire Reserve Card is too generous and they’ll never make back their investment and that the bank “is pushing for about $200 million in fresh cost cuts in the unit that oversees the card.”
Chase’s card income is down 15%, and new card signups are down 22%, year-over-year.
Sapphire Reserve had a 100,000 signup bonus offer for several months, in addition to a $300 travel credit which was redeemable twice during the first cardmember year (that loophole has since been closed). They expense acquisition cost over 12 months but expect to turn a customer profitable after 7 years.
The real question for the product comes as cardmembers face their first annual fee renewal. The Wall Street Journal picks up on the “5-24 rule” meant to “avoid signing up potential defectors.”
The big question is whether the consumers want to stay in this relationship. Customer renewal rates for premium credit cards can range from 60% to 90%, said Robert Hammer, founder and CEO of credit-card industry consultant R.K. Hammer. Some 5% to 10% of card holders tend to “shop around,” looking for new rewards, he adds.
Apparently Sapphire Reserve customers are both more focused on travel and dining 3x bonus spend (which is more costly to reward) than expect and are revolving less debt than Chase originally projected. Of course, American Express’s charge cards like the Platinum card for the most part don’t included revolving balances in their models at all.
At the same time the 100,000 point offer for a Chase mortgage is proving attractive to Sapphire Reserve customers with 4500 mortgages closed among this customer segment since the offer rolled out nearly three months ago. That’s “about twice the number of mortgage applications from other Sapphire card customers last year.”
Copyright: jetcityimage / 123RF Stock Photo
Cross-selling is one avenue that Chase can use to recoup their signup expense to the extent they’re acquiring new customers to the bank.