Sapphire: Popular with Customers. Maybe Too Popular
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What is the controversy around the Chase Sapphire Reserve's profitability?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. The Chase Sapphire Reserve credit card has some pretty generous reward offers for customers. But apparently that, along with high demand for the Sapphire, has not made the card very rewarding for its issuer, J.P. Morgan Chase. The bank is looking to cut costs at the unit that oversees Sapphire, and company officials are wondering when and if the card will make money for J.P. Morgan. Joining us from Los Angeles is Wall Street Journal reporter Emily Glazer. Emily, you write that J.P. Morgan wants to cut $200 million at this card unit. Is that an acknowledgement that the card has perhaps worked too well?
It's a really interesting case, Charlie, and I think the cost cuts of around $200 million at the consumer banking unit definitely can tell us a couple of things about how the business is going right now. What we know from our sources is that it's not directly the only thing going on. There's multiple factors when a bank as large as JPMorgan and a unit as large as its consumer banking unit, which, by the way, includes branches, cards, small business, a whole host of things. decides to do mid-year cost cuts like that. But it certainly seems suspicious to us, especially after hearing about the concerns inside the bank about how and if the Chase Sapphire Reserve card, one of the biggest hits Chase has ever had, whether that will make money or not.
Well, you write that spenders are growing savvier about maximizing benefits and avoiding balances that pad the bank's profits. And these are the customers that J.P. Morgan has made a big bet on.
Absolutely. These are affluent millennials who love a good deal. They love their points. You know, it's almost, we've written about people fighting at the dinner table of who gets to pay because they want the points. Think about the last time that used to happen. Usually it's people avoiding, you know, putting that much money on their cards. But these are really travel savvy consumers. You know, they get extra points for dining and travel. They get this, they used to get a huge 100,000 point sign-on bonus that was later cut in half to 50,000. And these are people who are not necessarily going to leave a balance on their cards every month. They pay off And that's because they are affluent and have the money to do it, and they're savvy about their finances.
Is that a big problem? Are customers paying off their balances? They're not leaving much on the table?
It's definitely part of it. That's one of the ways that the bank can make money is the net interest income, and that comes from balances that consumers have month to month if they don't pay off the bill in full.
Why is J.P. Morgan cutting $200 million from its consumer banking unit?
One of the other key junctures is actually about to occur. in the next couple of days. And that's when the renewal period after the first year starts to begin. The card was launched in mid-August of last year. And so, it'll be very interesting to see. And we won't really know. We'll have to do reporting on it. This is not publicly available. But I know people at the bank are tracking and are eager to find out how many people will pay the $450 annual fee to get the card for another year if they're not going to get any sort of bonus sign-on as they did for the first year. So that's this key point to see, you know, is the bank just giving away too much free money, or has it really hit the jackpot of customers as it says it has?
I'm speaking with Emily Glazer of The Wall Street Journal, and you're listening to Your Money Matters. Thanks for listening, everyone. Emily, the Sapphire Reserve card has been a huge hit in the industry, and I guess it's being looked upon perhaps enviously by rivals.
Absolutely. Amex and Citi both have premium credit cards. That's what it's known as in this space. that has really been sort of swallowed by Chase Sapphire Reserve. Someone joked to me after our article came out that Amex CEO Ken Chenault must be smiling like crazy after seeing a story that Sapphire Reserve might not pan out as well as people have been saying.
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