Sapphire Reserve Frenzy, “Devalued” Physical Card & What Does This Mean Long Term?

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Chase Sapphire Reserve Popularity

Chase Sapphire Reserve Popularity

The Chase Sapphire Reserve craziness has sort of died down, but in some ways the damage of the CSR frenzy will be around for awhile. Last week some people who were approved for the card started to receive it in regular envelopes instead of the very nice box that early recipients were given. Now, it seems that they have even run out of metal cards too!

According to Ben Steverman’s article in Bloomberg (for full disclosure I was quoted in it) the bank approved “tens of thousands” of applications in the first two days after release and actually ran out of physical cards.

Chase approved “tens of thousands of applications” in the first two days, said spokeswoman Lauren Francis; the majority of the cards are going to millennials. And the bank didn’t have enough of the special cards—made with a proprietary mix of embedded metals—to meet the demand, so for the time being, it’s sending out regular plastic versions.

This is quite interesting to me and definitely proves that the demand for Sapphire Reserve was far greater than Chase executives thought. Which brings up an interesting question. Was this demand driven by large groups like Reddit or did mainstream customers get in on the fun as well? I’m not sure, but I would guess it is a combination of both.

I have mentioned before that the card got a huge media push, largely because of the generous bonus and benefits. The card was talked about outside of the points/miles circles and the value proposition was so good, that it wasn’t hard for savvy customers, many of whom already have a Sapphire Preferred, to figure out this was a good deal.

The Long Term Implications

While running out of cards is only a temporary problem for the bank, perhaps the bigger issue is the sheer number of Ultimate Rewards points they have handed out. If we assume they approved 20,000 applications in two days, that means they put out $20,000,000 in points if you take their cash value. That will take awhile to recoup no doubt.

So the final question has to be what will be the long term implications of this? Well, I am still not sure a devaluation of Ultimate Rewards is imminent like some people, but I suppose it is a possibility.

I think it is more likely that we will see:

  • A significantly decreased bonus on CSR & possibly more– The offer is too rich and Chase will adjust it to equalize the market. Could we also see this have an effect on other Chase bonuses? Did marketing blow through their entire budget? There was speculation that this is why Citi removed some of their ThankYou bonuses. Time will tell.
  • More stringent guidelines for approval – Chase will want to restrict who gets this card even further to make sure it is profitable in the long term. Banks don’t normally make back their money until well into the cardmember relationship, so they will want to approve people who will keep this card and who will use it.
  • Removal of benefits – I think there is a possibility that some of the generous benefits may be removed or devalued. This won’t happen for awhile, since Chase will need to give customers notice before making these changes and they have marketed many of these benefits as part of the launch.

Your Thoughts

Did you receive a plastic card? What do you think will happen given this card’s up front cost to Chase and overall popularity? Is an Ultimate Rewards devaluation imminent? Let us know in the comments!


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26 COMMENTS

    • It’s 20 mil in UR rewards!

      And that doesn’t even include the $300 travel credit(s), and all the other goodies. No way Chase is making this money back in fees.

  1. Well if you count the 92% of them denied applications then yeah but remember just cos you apply doesn’t mean you are approved . Insider source is that many applied but most got rejected or denied so chase is in good shape. I am sure non chase card issuers issued more cards than chase did in last 10 days

  2. Why is the offer too rich? The bank has a horde of financial types analyzing spending patterns to ensure a longer term profit and Chase is aggressively turning away churners with the 5/24 policy. Chase is not in business to give away money or lose on transactions and most co-branded travel cards struggle to match 2% cash back returns for customers providing Chase with juicy profits. An individual has to spend at least $6000 annually on travel and dining to net a 2% return after the $450 annual fee with the $300 travel credit to match the Citibank Double Cash card. The same individual would have to spend $10000 on travel and dining after the $450 annual fee assuming full use of the $300 travel credit to net a 3% return similar to the no annual fee Chase Costco card which features a 3% return on dining and travel. I suspect most folks don’t really run the math required to compare travel reward credit card returns with no annual fee cash back card returns. The Sapphire Reserve has many nice insurance benefits, but these, hopefully, are needed only rarely. Even with the fat up front signup bonus carrot, my bet is that Chase will profit for most folks keeping this card past the first year.

    • Spending only $3,333.33 a year on dining and travel clears the $150 difference ($450 AF – $300 TC)

      $3,333,33 (spend) * .01 (points earned) * 3 (Dining/travel bonus) * 1.5 (Booking on UR) = $149.99

      And that’s if you don’t transfer points which typically nets me 2¢-6¢ per point. That math would be subjective though.

      • You are right that the $3333.33 annual spend recovers your $150 difference but it puts no money in your pocket. I would love to know how to get 2 to 6 cents per point without redemptions for premium international long haul flights. Starwood points can be redeemed at Starwood hotels for up to 6% return but it takes some searching to find such redemptions.

  3. The above calculations assume a point value equal to redemption at the Ultimate Rewards travel portal at $0.015 per point for the Chase Sapphire Reserve card. Also, Chase can recover some costs by making the portal less cost competitive with other options. The same cost comparison calculations for the Chase Sapphire Preferred card as compared to a no annual fee 2% cash back card show that the signup bonus may be the biggest carrot customers get. Honestly, how many folks would sign up for the Chase Sapphire Reserve based on its ongoing value proposition without the huge signup bonus?

  4. The above calculations assume a point value equal to the redemption value at the Chase Ultimate Rewards travel portal at $0.015 per point. Chase can recover cost by making the portal redemptions less competitive with other options. How many folks would sign up for the Chase Sapphire Reserve without the signup bonus based on its ongoing value proposition? It is likely more profitable for Chase to offer the big carrot signup bonus than provide an ongoing transparent net return exceeding competitive cash back cards.

  5. My thoughts:

    A) Running out of cards doesn’t mean anything at all. They ran out of Ritz metal cards back when they had the 140k point offer. They sent me 2 plastic cards. A couple of months later, they sent my metal one. I just think they don’t horde more materials than necessary for stuff like this — no sense in having excess lying around. They ordered an amount they knew they’d use and then they’ll go from there. That’s just smart business rather than ordering a bajillion more metal cards than they needed. I expect the bank to be good enough at business to not waste money on more material than necessary. In the end, not everyone will even call to request the metal one. Win for the home team.

    B) The sign up bonus on this card is great. But it’s not unheard of. The Amex Biz Plat 150k offer was at least as valuable IMO. Amex periodically bumps up the other Platinums to 100k. This 100k on the CSR is no-doubt a debut offer — I’m sure they’ll cut it back, but I’m also confident that it will be higher than the now-standard 50k Sapphire offer and one would expect it to be higher than the 60/70k standard Ink Plus offers (as the AF is so much higher). I’m betting on 80k being the standard and 100k being the periodic bump-up — maybe even with a 10k AU bonus. I’m not downplaying what a good offer the current offer is — but it’s not offering outsized value IMO. It’s par for the course for the premium card products. Citi has dropped their game with the 40k on the Prestige, but the 4th night free benefit more than makes up for it.

    That said, the short-term downside of this offer is definitely going to be increased difficulty in finding the right UR redemptions with more competition out there. But that’s just a temporary issue.

  6. “he short-term downside of this offer is definitely going to be increased difficulty in finding the right UR redemptions with more competition out there. But that’s just a temporary issue.”

    I agree with this. If you have United travel to book, the time to do it is now, before all those people get their UR points.

  7. Chase branch manager told me the metal cards (for the sapphire) cost around $500 to make. So even if they have to pay for making a plastic card and mailing, it’s significantly less costly than holding a bunch of these metal cards if it wasn’t received well by the masses.

    • Maybe he was referring to the old Palladium card or something, but there is NO WAY that either the CSP or the CSR cost Chase $500 to make, especially with the quantity they are producing them at. My guess is that dollar figure would be in the $5-10 range, shipping included.

    • It does not cost them $500 to make that physical credit card. What they probably intended to say was with all the planning, account creation, marketing and production it costs that much per new account opened.

      This card and it’s current bonus will be around for a long time. They spent a lot to invest in new signage, desk mats and so forth which have the bonus details included. They knew from their studies of us, if they created a card which gave continued incentive to use he card (1.5x, credits, perks) the likelyhood many would retain the card longterm meant a bonus investment that would pay off. In fact, a Chase employee told me there’s a higher chance of bonus increase limited time offers in future years, beyond 100k, than there are of a decrease.

      • You’re probably correct in that he’s factoring in other costs. I thought the number was a bit high as well, but then again, none of us really know. I was just relaying what a branch manager told me.

  8. First, the metal cards do not cost $500 to make. That’s just silly for so many reasons. Second chase doesn’t pay out $20M in any real money immediately because not everyone would have collected and used their points immediately. Also, they will receive $450 from each new member most likely before they spend that much in rewards redemption. The latter is an educated guess, but it must be what their statistical model predicted with high confidence or they wouldn’t be doing this.

    • Good points and you are right about the influx of fees up front. Chase isn’t going bankrupt over this card, but they do have projections and budgets and that is what will determine their decision making process whether or not they are shelling out the $20,000,000 now or not. Obviously I don’t know what Chase is thinking now, but it seems to me that based on everything I am hearing, they were shocked with the demand. If they attracted the right types of long term customers early then this is a win, but if it is a bunch of people who cancel after a year, then they lose, because it will take them longer than that to recoup the bonus, etc.

    • Do you have inside knowledge pertaining to the overall cost of a metal card? I ask because you’re sounding as if it’s factual and wondering if you had something to support this. As I said above to Ed, I don’t believe it’s anywhere near $500 either, but that’s just what a branch manager told me. Don’t kill the messenger ya’ll.

      As far as whether or not this is bad for Chase will heavily depend on retention rates going into year 2. Time will tell. Right now though they’re definitely eating it on this card.

  9. I was so looking forward to the unboxing, when the envelope arrived I was sorely disappointed and went online to see what was up. I found the story you had quoted (and were quoted in). Yes, I was looking forward to the metal card. BUT, I’m otherwise satisfied with the offer. And it makes sense that something useable arrived before Labor day weekend. I’m comparing it against AmEx Platinum and it seems to be comprable.

  10. They aren’t losing $20 mil in points b/c the $450 annual fee will will take $9 mil in. Banks know what they are doing. They aren’t going to lose on this

  11. I personally don’t think there would be any devaluation or benefit removals. For Chase, it is easy to implement the same rule that AMEX has already done for a long time: automatically limit CSR opening bonus for once per life-time, or even deny any applicant who had applied within >24+ months for this card.

  12. FWIW – applied over the weekend. Under 5/24, 790 ish scores. Existing mortage and United card holder. Approved online, metal cards in hand today.

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