Chase’s $800 Sapphire Reserve: The math is messy, but the strategy is brilliant

Chase and Amex are transforming credit cards into lifestyle subscriptions, designed to redirect your spending. (And for the first time, I’m reconsidering my membership.)

Is a credit card with an $800 annual fee worth it? For most people, almost certainly not. But that’s how much Chase is now charging for its flagship Sapphire Reserve Visa card: $795 to be exact — a classic sticker-shock concealer — up $245 from its previous annual fee of $550.

The higher-fee card comes with what Chase describes as “more than $2,700 in annual value.” That’s mostly in the form of rebates for purchases at select merchants, including luxury hotel partners, Lyft, Peloton, DoorDash, and StubHub.

It’s a great example of how card issuers like Chase and American Express are trying to transform their highest spenders from mere points collectors into “members” of a more elaborate lifestyle subscription, increasingly based around a treasure hunt of “value” they unlock through — of course — more spending.

Amex has been driving this movement with its Platinum card for the past several years — now sporting a $900 annual fee (sorry! $895) — including access to a growing network of branded airport lounges, priority restaurant reservations, and its own version of these coupon booklets designed for upwardly mobile Millennials.

If I sound skeptical about the value proposition here, let’s walk through how a few of these rebates work.

Chase, for instance, lists $300 in DoorDash credits as one of the main features of the new Sapphire Reserve.

But to use the full $300 in credits, you have to really do some work, making 36 transactions over the course of a year. You’ll get $5 off one restaurant order per month (DoorDash’s core feature; relatively easy to accomplish) and $10 off two orders per month for “groceries, retail orders, and more” (less popular than restaurant orders, which means adopting new habits to hit the target — and a potential land grab for DoorDash if it works).

Chase will also credit you $500 per year for booking certain luxury hotels that are part of its new “handpicked collection” called The Edit.

This sounds great. But really, it’s $250 in credit, twice per year, and each qualifying stay requires a two-night minimum. The hotels in The Edit also tend to be very expensive — often in the high hundreds or more than a thousand dollars per night. And you have to book them through Chase Travel, which is subject to its own inventory availability and pricing.

Chase loves this because it’s now no longer just the card issuer, but also the travel agent, and can collect a much higher percentage of the total booking: While credit card transaction fees are in the low-single-digit percentages, booking fees for online travel agencies can reach 15% to 30%, according to CloudBeds. (Chase acquired parts of this infrastructure in 2020 and 2022, and has also partnered with Expedia over the years.)

And it makes sense: In an investor presentation a few years ago, Chase said that its customers already represented around $1 of every $3 spent on US leisure travel. Why not try to funnel even more of that through owned-and-operated channels? (Plus, command even more power over hotels and airlines — some of Chase’s leading co-branded card partners — in the process.) That’s why Chase is dangling the $500 in rebates for The Edit, and offering a new 8 points per dollar earning rate on Chase Travel purchases.

Anyway, the point is that to get that $2,700 in value, Chase Sapphire Reserve cardholders are going to have to spend many thousands of dollars, jump through hoops, change their shopping behavior, and further enrich their card issuer in the process.

And, crucially, this is not free money: This is just to “earn back” some or all of the $800 that they’ve already paid Chase in membership fees — an interest-free loan to the bank!