As credit card issuers experiment with various ways to revive annual fees, JPMorgan Chase & Co. is betting on the subtle approach — and waiting for its customers to volunteer to pay.

In June, the banking company introduced an "Ultimate Rewards" program with both fee-based and free tiers. But over time, an executive said Wednesday, it hopes that the potential to earn better rewards will encourage fee-free cardholders to opt in to an annual fee.

"The goal is to upgrade every single one of those customers over time into the fee-paying version," Rob Rosenblatt, JPMorgan Chase's general manager of customer loyalty and innovation, told payments executives and industry members Wednesday. "We believe that the CARD act is really going to force issuers to not only create a rational set of rewards economics, but annual fee economics. So the $64,000 bet is: Can we convince customers that the value that is intrinsic in the premium version of the program is well worth the annual fee" of $85 for the Chase Sapphire Preferred card. "And I think the answer is 'yes.' "

That said, "Do I think that 100% of our customers will start paying fees? No, absolutely not," Rosenblatt added in an interview after the speech. There will always be a "balance of free and fee customers, but I think what we do believe is that the free program will serve as a natural feeder to the fee program for those who see the benefits of a richer offering on Sapphire Preferred or our premium products."

Industry members were more bluntly negative in their assessment of JPMorgan Chase's chances of tempting most customers to switch to a fee-based rewards card.

"No way in hell," said Ron Shevlin, a senior analyst at Aite Group LLC. "There are too many cardholders who won't pay for rewards. … The real success for Ultimate Rewards is going to come from no-fee Sapphire cardholders and Blueprint," the online spend-management tool that JPMorgan Chase unveiled in September.

Shevlin, who said he is in general a "very strong supporter" of JPMorgan Chase's cards strategy, called the current industry emphasis on annual fees "an act of desperation more than long-term strategy."

But Rosenblatt, a veteran of Citigroup Inc. and American Express Co., would not say whether JPMorgan Chase planned to always offer a free version of Ultimate Rewards or eventually phase it out in favor of a fee-only model.

"I'm not sure that anybody knows that answer, but if you look at the announcements some of our competitors have made, they are beginning to [introduce] fees, across the board in some cases," he said. "If you provide the right value, customers will be willing to pay, and the fee is a natural gaming mechanism to get the kinds of behaviors we're all seeking, which is high spend, high loyalty and good credit."

Citi and Bank of America Corp. have both experimented with implementing annual fees on small portions of their portfolios, and some issuers have added or revived other types of fees, like inactivity fees.

On Tuesday, B of A told American Banker that its decision to implement annual fees on 0.5% of its customers was a "test" and that it did not immediately plan a fuller rollout.

Rosenblatt's speech opened the annual Cards&Payments Loyalty Conference in midtown Manhattan, sponsored by American Banker's parent company, SourceMedia Inc. Like many speakers at the conference, Rosenblatt discussed issuer strategies to reduce the costs of offering loyalty programs without making such cuts apparent to consumers.

Industrywide, issuers are asking "How can we control costs while at the same time creating value for our brands?" he said during his speech.

For example, Ultimate Rewards is one of 130 loyalty programs at JPMorgan Chase.

"That's just not efficient," he said. In terms of "rationalizing economics, one of the most efficient things we can do is sunset 129 of those brands."

And on the consumer side, "the customer is just too good at gaming right now" — trying to get the most rewards for the least spending, such as by taking advantage of special offers. "So it's really important that we clamp down on those attempts to game and provide value" to loyal customers, he said during the speech.

In the interview, Rosenblatt argued that such a customer tendency to try to exploit rewards programs — and the willingness to switch issuers right now — is helping JPMorgan Chase's efforts to establish its new offering.

"Most of us, most issuers, haven't spent enough time building true loyalty. What they have trained customers to do is game, and to surf" from one card to another, he said. "We've tried to create a program that, I won't say it's gaming-proof, but it doesn't have a lot of game-ability yet, and it's very narrow, and it's not chock-full of the things that make customers surf."

All the same, he acknowledged that the program is young and will take time to gain traction in the market — and to justify JPMorgan Chase's investment in a 130th loyalty program.

It will be "probably a year before we start to see sustained wallet-share gains," he said. "But the early news is that customers have noticed the difference, and there are promising patterns in terms of spending and also places they're redeeming."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.