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JPMorgan Chase is planning to cut about $200 million in costs related to the unit that manages its popular Sapphire Reserve card, according to the Wall Street Journal.
The bank already cut the rewards associated with the card in half back in January — initially, users who spent $4,000 in the first three months earned 100,000 rewards points toward travel, equivalent to roughly $1,500.
As a result of an overambitious original offering, Chase was able to spark adoption of its card, but it experienced significant losses nonetheless.
Chase’s Sapphire Reserve card challenged the entire industry, as it quickly became one of the most sought-after card products. After launching the Sapphire Reserve card, the bank exceeded its one-year sales goal in just the first two weeks and reported a 35% increase in new card accounts in Q3 2016, according to First Annapolis. The big signup bonus, travel credits, and ongoing points structure likely had a major impact on the bank’s ability to get consumers to adopt the new credit product.
However, even with this success, Chase isn’t expected to post a profit from the card for years. Chase isn’t expected to break even on its Sapphire Reserve card investment for five-and-a-half years, even though the card has been a successful driver of adoption and usage for the bank’s wider credit card portfolio, according to data from Sanford C. Bernstein & Co. research cited by Bloomberg. This is in part because cardholders aren’t holding balances that would give the bank valuable revenue from interest, and consumers aren’t renewing the card after earning the high original bonus.
Cuts to rewards programs are likely to …read more
Source:: Businessinsider – Finance