Sapphire Reserve Cards Aren’t Very Rewarding for J.P. Morgan

www.wsj.com

Emily Glazer:

One problem for Sapphire Reserve: Fewer customers than the bank initially imagined are holding balances, according to the people familiar with the matter. That lowers interest income generated by the card and forces the bank to focus on merchant-driven “interchange” revenue—which at about 2.5% of dollars spent is generally less lucrative than interest income.
Cardholders have proven adept at squeezing the most rewards out of Sapphire Reserve, often using it for travel and dining, categories where J.P. Morgan generally pays more to cover rewards. Consumers also are likely to book travel through Chase’s rewards website for an additional 50% bonus that the bank covers.

Everyone knows that credit cards have a history of being decidedly unfriendly towards consumers. They lure you in with fairly low rates, then gouge people who hold a balance once that period is over. And so it's fascinating that consumers are increasingly flipping the equation thanks to these crazy initial rewards cards like Sapphire Reserve. 

I feel like you increasingly see this card everywhere -- I have one too! -- so it's not shocking that J.P. Morgan may be in a bit over its head here. Of course, they wouldn't be if customers carried a balance, but the demographic they have targeted here increasingly doesn't...

Like the raptors testing the fence in Jurassic Park, consumers are getting smarter (though I fear many of the folks who need to solve their credit issues the most aren't yet in this camp, hopefully this trickles down).

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