Magazine article American Banker

Starbucks Brews a Model for Prepaid Cards

Magazine article American Banker

Starbucks Brews a Model for Prepaid Cards

Article excerpt

Starbucks Corp. has sold more than five million stored value cards, a runaway success story that actually highlights how poorly other companies have fared in marketing similar payment products.

But Starbucks has no intention of sharing the wealth. Anne Saunders, the vice president of Starbucks Interactive, said the Seattle coffee company has been approached by banks and retailers with "lots of creative ideas" (including, presumably, cobrand relationships for the card), but is going it alone for now.

"I don't know that I see us joining some of these coalition groups," said Ms. Saunders, whose unit manages e-commerce channels and direct consumer initiatives. Adding other names to the bill could defeat the very idea of a Starbucks loyalty card, she said.

The appeal of the Starbucks model is that it functions more like a transit pass than like a gift certificate -- a comparison cardholders often make in focus groups, Ms. Saunders said. "It's the right situation for this type of functionality, with high frequency and fairly low-ticket purchases, so that you're not putting hundreds of dollars on the card up front," she said. "And it does increase the speed of transaction, which is important to some people."

Starbucks has bolstered consumer interest in the card by coming up with designs pegged to holidays and other themes, and customers -- about 20 million patronize its stores each month -- can register for the no-fee card in stores or on the Starbucks Web site, and can load up to $500 on it. They can reload their accounts in stores or online.

All in all, the effort has been more successful than banks' attempts to get parents to load up cards for their children to shop with. American Express Co. and Visa U.S.A. have had sore luck with general-purpose prepaid cards for teens (Cobaltcard and PocketCard were pulled last year), and though Visa Buxx, issued by several banks, and the Citi Cash card from Citigroup Inc. are still around, neither seems to be thriving quite like Starbucks' six-month-old product.

Not only has it sold like crazy, but it has prompted at least a quarter of buyers to reload the card with nearly double the initial amount ($13 versus $20, on average).

Getting people to buy their coffee up front -- and perhaps toss the card if it only has a few cents left on it -- has been a boon to Starbucks' bottom line, and the company has cited the product, introduced in November, in its announcements of record monthly store sales this year.

Nearly all of Starbucks' 3,200 company-owned stores (apart from licensed sites at airports and hotels) have by now installed point of sale systems that accept the card in addition to Visa, MasterCard, American Express, and Discover. Transactions do not require a signature or PIN.

Starbucks -- along with its processing partner ValueLink, a subsidiary of First Data Corp. …

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