Credit Unions Should Look to Starbucks for Hints on How to Offer Prepaid

by Ben Jackson 0

Credit Unions should learn from Starbucks Coffee Co. when it comes to offering prepaid and present tiered rewards to users, according to an opinion piece in CU Insight. The article points out how Starbucks is now holding more consumer funds than many banks.

The volume of consumers’ cash stored on Starbucks cards is impressive in its own right. What’s even more impressive, however, is that this figure exceeds the deposits at many financial institutions (FIs). California Republic Bancorp, Mercantile Bank Corp and Discover Financial Services are just a few of the FIs outmatched by Starbucks’s deposits.

To win back consumers prone to depositing their money in Starbucks accounts, credit unions should consider bolstering their prepaid programs with strategies straight out of the Starbucks playbook.

The issue for credit unions and other financial institutions is making sure that the rewards are economically viable. Extending card life is an important goal for prepaid programs, but the life of those cards needs to include profitable behavior on the part of the cardholders. Aligning incentives with profitable behavior is critical for prepaid programs. It is also important to remember that the business model of the Starbucks card is based on both the revenue that it helps to drive along with the reduction in payments costs that it brings. So fine tuning the economics of any incentives program is critical.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

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