Here's how banks can offer credit cards like the Sapphire Reserve with enormous sign-up bonuses and still turn a profit

pulse

March 15, 2017 10:13 PM

With credit cards like the Sapphire Reserve, banks are willing to eat a gaudy sign-up bonus and play the long game.

Jamie Dimon isn't sweating a short-term loss on the uber-popular Chase Sapphire Reserve credit card.

It's not often that a CEO will announce a $200 million loss with a hint of pride, much less that they'll claim they wish the loss was twice as large.

But that's exactly what JPMorgan Chase CEO Jamie Dimon did in January while discussing the impact of the company's insanely popular Chase Sapphire Reserve rewards credit card.

Released last summer, the Sapphire Reserve generated intense interest because of an array of enticing benefits to cardholders, including triple points on travel and dining as well as a gaudy 100,000 point sign-up bonus — worth $1,500 — which the company slashed down to 50,000 points earlier this year.

By year two, credit card companies expect to turn a profit on the average cardholder, according to . You can see UBS' hypothetical example of revenues and costs on a high benefit card below.

If either of those projections prove meaningfully off — if, for example, savvy cardholders use the Sapphire Reserve exclusively for travel and dining and put other costs on a separate cash-back credit card — it may take longer for these cards to reach profitability for JPMorgan.

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