Chase and Starbucks join forces on prepaid card to acquire more customers

JPMorgan Chase is using a Starbucks Rewards co-branded card to build its customer relationships and grow new ones. The bank joined forces with Starbucks to roll out a prepaid Visa card this week that lets customers earn Starbucks Rewards stars whenever they use it -- even when it's not being used at Starbucks. The product broadens the pool of customers for JPMorgan Chase, including Starbucks Rewards members, and opens the door to future possibilities to redeem points beyond the Starbucks ecosystem. "They can get in more customers who may not qualify for a credit card; it also helps that they already have a prepaid [Starbucks Rewards] card which people are used to using, and this is a natural extension," said PayGility Advisors partner Christienne Genaro. For the bank, the co-branded card is a useful customer acquisition and retention tool, given the strength of the Starbucks name among loyal customers. It's a valuable cross-selling opportunity, as the card agreement lets Chase market its products and services to them. The prepaid Visa card is the second Starbucks reward card Chase rolled out this year, after launching a Starbucks credit card in February. Customers earn 125 stars at sign up (equivalent to one beverage) for the fee-free card, and one star for every $10 on purchases outside of Starbucks. Customers still earn more stars using the Starbucks Rewards card in-store or through the credit card, which has an annual fee of $49. While debit cards from Chase or other financial institutions can act as funding sources, the card offers the prospect of onboarding additional customers. "This is a co-branded partnership between Chase and Starbucks where they can leverage the Starbucks reward program to open new depository accounts," said Aite senior analyst Kevin Morrison. Through the card, the bank is growing its relationship with the coffee giant, for whom it already acts as a payment processor; Starbucks has also been an inaugural Chase Pay merchant since 2016. By linking up with large retailers like Starbucks, the bank can grow its reach by tapping into loyalty programs of household consumer brands. It's a strategy it has used to grow Chase Pay's visibility. With the Starbucks tie-up, Chase is combining its massive customer base with the scale and brand affinity of Starbucks -- a win for both players. It also opens up possibilities for Starbucks Rewards stars to evolve as currencies of their own, like airline frequent-flyer points. "It's all about getting engagement out of your most loyal customers and effectively creating the stars as a 'currency,'" said Morningstar senior retail, restaurant and e-commerce analyst R.J. Hottovy. "Potentially, you could start using these 'currencies' elsewhere -- it reminds me of [airline] loyalty miles -- you earn points and use them on the airline and other places as well." Much in the same way airline points earned through credit cards can be used for hotels, restaurants and other purposes, Starbucks points have the potential to evolve along a similar path. It's a longer-term strategy that could take time to materialize, but the building blocks are there, especially given that Starbucks already has relationships with other retailers, Hottovy said. Starbucks, like Amazon, is looking to enhance digital relationships with customers to drive growth. Debit and credit cards that earn loyalty points are ways to entice more customers to become members and get further invested in its ecosystem. Of the 75 million customers who come to Starbucks every month in the U.S. alone, 15 million are active rewards members, according to the company. "Establishing digital relationships with many more customers represents a significant growth opportunity as we have proven that a direct communication channel combined with personalization enhances the customer experience and drives increased engagement," CEO Kevin Johnson said in an earnings call in April.