With mobile app stalled, Starbucks turns to Chase cards to boost rewards program

Retailers in the quick-service food and beverage industry have tried to emulate Starbucks' popular mobile app and mobile order-ahead technologies, but Starbucks itself appears to be leaning toward generating more sales through plastic cards.

It wasn't an entirely unexpected move, considering Starbucks has been talking about launching a Chase Visa prepaid card for its customers since early 2016, but the coffee giant's announcement this week that it would add the plastic card to its loyalty program may be the answer to generating sales while its mobile app tries to pick up its pace.

Starbucks' much-ballyhooed mobile app, which accounted for 30% of the company's sales a year ago, hasn't continued to grow at a pace that company executives expected. In fact, it is pretty much stuck at that 30% level.

Daniel Acker/Bloomberg

The mobile app's popularity was joined at the hip with Starbucks gift cards and loyalty points — a formula that has traditionally been known to work well at other retailers through plastic cards.

If Starbucks is looking to jump-start some of its mobile channels, the possibility of doing it through plastic card options first makes some sense. Ultimately, a co-branded prepaid card with Chase allows customers to earn "Stars" based on transactions and can be redeemed for future coffee — putting it solidly within the company's strategy.

The prepaid product comes nearly four months after the companies launched a co-branded credit card for Starbucks customers, representing the first new products with Chase Merchant Services since the companies agreed in early 2016 that the Chase Pay mobile wallet would be part of the Starbucks app when Chase Pay rolled out.

"Certainly, Starbucks has handled the whole card program well, but what is unique about this is that they made it like an airline rewards model, where you can earn the Stars and get paid based on the spend and not just the visits," said Brian Riley, director of card services for Mercator Advisory Group.

While it could translate to even more mobile app use down the road, with the new cards loaded into a mobile wallet, at the moment it is simply another payment option for Starbucks customers.

"Many will view it as an easier process to just take out a card, rather than using the phone," Riley said. "With the phone, you have to wave it at the reader or give it to the barista to do, so this seems to make it a little easier for some."

Loyal Starbucks customers may find the combination of the credit and prepaid debit card an easier way to get the most out of their rewards program, Riley added. "If you do it right, in using the credit card to fund the prepaid card, you could get a double benefit out of it."

The Chase Visa prepaid card will allow Starbucks customers to earn their Stars when using the card at any merchant accepting Visa, both in stores and online. Those entering the loyalty program through the prepaid card automatically get Gold Status and can earn a free beverage or food item at Starbucks with 125 earned Stars. Those who sign up, get a 125-Star bonus the first time they use the Visa card to load at least $10 to their registered Starbucks card.

"This reloadable Visa Prepaid card is a unique and modern option that gives customers one more way to earn more Stars and Rewards through everyday spend, in a way they haven't been able to before," Matt Ryan, chief marketing officer for Starbucks, said in announcing the prepaid card's launch.

Starbucks CEO Kevin Johnson and other executives have hinted at the need to invigorate the company's mobile channels, or at least provide options that would continue to pump sales and loyalty while complementing mobile.

“We want to offer Starbucks customers a flexible card that delivers more Star-earning potential in the fastest way possible,” Jennifer Roberts, head of digital products for Chase, said about the new launch. “The new Starbucks Rewards Visa prepaid card is perfect for Starbucks fans who want a simple way to pay and get rewarded for everyday purchases.”

A previous branded Visa card through the Starbucks and Chase relationship became available to consumers in 2003, under the name of Duetto, but it was pulled in 2010.

The Chase prepaid card announcement comes a week after former CEO Howard Schultz revealed he'd be leaving his role as Starbucks Corp. chairman this month, ending nearly four decades of building the company into an American icon.

"When you look at the whole relationship, it is pretty well established between Chase and Starbucks, so why not go from end to end on the whole spectrum of cards?" Mercator's Riley said. "Now there is a solid prepaid play, there's an extension for your debit card, or you can just go with a regular Starbucks card with plastic or mobile."

Ultimately, the various payment options represent "an intentional play to get through the whole spectrum of how people shop at Starbucks," Riley added.