Chase has taken a big hit because of credit card rewards. Chase had its second-quarter earnings report today, in which the bank announced a record $8.32 billion profit. But in the report it was also mentioned that credit-card customers were redeeming points faster than anticipated, resulting in a $330 million charge.
“This is maybe larger than we have seen over the course of the last several years,” said Marianne Lake, the chief financial officer, during a conference call with reporters. “We do pretty regularly review our rewards liability in light of evolving consumer behavior.”
Credit card rewards have seen a huge boost recently with a few premium cards hitting the market. Chase released its own Sapphire Reserve card in 2016, which came with great perks including a 100,000 Ultimate Rewards signup bonus (now down to 50,000) and triple rewards for travel and dining. That 100,000 points bonus was worth at minimum 1,500. Quarterly profits took a hit of $300 million in December 2016.
The $330 million charge might be a sign of consumers getting smarter about their credit card rewards. If you regularly read this site and other similar ones, then you know how to get the most value out of your points. As this community grows, rewards will be definitely spend more wisely. The Sapphire Reserve card made it even easier to redeem rewards, since there’s no need to jump through hoops, or read up on point transfers and tricks. You can just redeem for travel at a value of 1.5 cents per point. That’s a great option to have especially if you do not plan ahead and you’re stuck with no award availability.
Informed consumers will even use credit cards in a way that maximize rewards. This quarter for example you would use your Sapphire Reserve card at restaurants to earn 3X, but your Chase Freedom at gas stations to earn 5X. And then your Freedom Unlimited everywhere else to earn 1.5X.
But don’t feel too bad for Chase. That $330 million charge is a small hit compared to the $8.32 billion profit. Lake said that “the recent charge, coming from Sapphire and other cards, is a good thing because it shows how engaged users are. The cards division has seen strong loan growth, modest charge-offs and record low attrition rates, she said, alleviating fears from some analysts that customers would stop using the plastic after redeeming the sign-on bonus. Engaged customers bring us more spend, they bring us more of their share of wallet.”