Starbucks Brews Up Its Own Credit Card

by Raymond Pucci 0

Latte lovers rejoice—Starbucks has launched its long-awaited Visa credit card in partnership with Chase. As the following article describes, the co-branded card will offer another layer of loyalty rewards and benefits.

Facing slowing sales, Starbucks (SBUX, -1.23%) hopes to jumpstart growth by bringing more customers into its membership program. The company announced on Thursday that it is launching a credit card with J.P. Morgan(JPM, +0.67%) and Visa (V, +0.78%). The Starbucks Reward Visa card will launch later this year.

The credit card will allow customers to earn “Stars,” or rewards points, which can be redeemed at more than 8,000 Starbucks locations. With a $49 annual fee, the card may only be worth the investment for customers who already make Starbucks purchases super frequently. The rewards points can only be redeemed for food or drinks from Starbucks and expire six months after they were earned.

Cardholders will automatically be enrolled in the company’s loyalty program and will receive additional membership perks. If Starbucks Rewards Visa cardholders spend enough money, they could potentially receive free food or drinks nearly every week during their first year, according to Jennifer Roberts, head of digital products at Chase.

Branded credit cards have long been a popular way to boost customer loyalty. Uber, for example, launched a credit card in October. Many companies with co-branded credit cards also earn money when new cards are issued, as well as from fees and penalties paid by cardholders who are late paying off bills.

Details of Starbucks new credit card are just being revealed, but it’s somewhat surprising that there is a $49 annual fee. This will be a key factor as consumers decide whether to apply for the card. We know that points can only be redeemed at Starbucks—and there is an introductory purchase incentive being offered. A key question is: what’s the incremental value of the card over the existing Starbucks loyalty program? The Chase and Visa partnership will give lift to the new card, plus Starbucks has an extremely loyal customer base. Time will tell—but right now, we’re going to have another espresso.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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