Chase Sapphire Card Perks Costing the Company Millions (JPM)

The Chase Sapphire offer that's too good to be true has just struck again – and not just for holders of the Chase Sapphire Reserve ($450 fee) credit card, which famously cost JP Morgan Chase millions. This time you can also get the 100,000 rewards points if you have a Chase Sapphire Preferred ($99 fee, starting year two) or even a plain no-fee Sapphire card. All you have to do is close a "new, residential first" mortgage purchase loan with the bank, with your application submitted by August 6, 2017. The goal is to target Millennials, who famously snapped up the Sapphire Reserve and now make up the majority of  first-time homebuyers.

In December JPMorgan Chase Co. (JPM) announced that its profits for the fourth quarter would be lower than anticipated, from $500 million down to $300 million, owing to the rewards program included with its coveted Chase Sapphire Reserve credit card, which has been available since mid-2016. The credit card, as with many other rewards cards on the market today, offers point-based bonuses to users for spending particular amounts of money within a given time frame.

While most credit cards of this type offset those point bonuses to customers with annual fees, and the new Chase card is no exception, it seems that in this case the card has been so popular that it has cost the company hundreds of millions of dollars. Chase in fact ultimately cut the original Chase Sapphire Reserve bonus to 50,000 points on January 11 (for online customers) and March 12 (for those who applied at a retail bank). 

Since the new offer brings Chase years of healthy mortgage interest payments, it's likely it will have a less delterious effect on the company's bottom line. Below, the story of the original impact.

Dimon Announces Profit Decline

News of the Chase Sapphire Reserve card's success came at a conference on December 6th, when CEO Jamie Dimon told investors that the card will be responsible for lowering the company's Q4 profits by $200 million, or about 40%.

What are the bonus offers associated with the card that were so enticing to Chase customers? As with many rewards cards, Chase offered customers a major points bonus for spending a preset amount of money within the first few months of card usage. In this case, customers received 100,000 points for free, valued at between $1,000 and $1,500 depending upon the redemption options, for spending $4,000 in the first three months of use. The card also provides access to airport lounges, an annual credit for travel valued at $300, and more. The card requires a $450 annual fee and additional yearly charges for additional cardholders beyond the primary holder.

Sign that the Card is a Success

In a sense, the fact that the new credit card is costing Chase money means that it has been a terrific success. Dimon indicated in his remarks that "the card has been doing great," and it has quickly skyrocketed to be one of the most popular rewards cards available. In fact, Chase ran out of the metal used to embed the cards for their unique feel, thanks to such a great level of demand.

The acquisition costs associated with the card could put Chase in a position in which it loses money for several years. One analyst speaking to Quartz indicated that it might take more than five years for the company to even break even. If the popularity of the card keeps up, that should be no problem. However, if the initial buzz associated with the card can't be maintained, or if "churners" who have signed up for the initial deals end up canceling their contracts before the next yearly fee hits, Chase may continue to be in a losing position.

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