Java and Prepaid Cards: A Better Brew

While tests by the banking industry of prepaid cards for students and other groups have gone pretty flat, other industries have fared better. One very successful card is the Starbucks stored value card. In just six months of existence, more than five million cards have been purchased as gifts or a convenient way to buy Starbucks products.

Starbucks attributes the success partly to the fact that coffee drinkers and prepaid cards are a good mix. Because coffee buying is high frequency purchasing of low-cost items, people often don't put much on the card up-front, and they like the fact they can purchase smaller amounts and use the cards for small purchases. However, the company also makes it very convenient to reload the card through the Web site or its chain of 3,200 company-owned stores.

The Starbucks card can hold up to $500, but the average amount is $20, an amount that has climbed upwards in the six months from an average of $13. Over a quarter of the people that initially purchase a card are reloading. The card can be used both in stores and online, where the company offers a catalog of coffee-related merchandise. No signature or PIN is required to purchase with the card; however, a PIN and activation number is used initially to activate the card either online or in stores. Balances can be checked via the Web site or telephone.

The card, which has carried holiday themes during appropriate gift months, is being marketed as a gift from consumer to consumer, a gift from business to customer and a convenience to regular customers. The fact that many people throw cards with a few cents left on them away is a boon to the company's bottom line. One of the terms and conditions for the cards' use is that after a year of non-use, a $2-a-month fee is deducted until the card is empty.

Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 2, 4/30