Chase And Starbucks Ending Cobranded Credit Card

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The severing of JPMorgan Chase & Co. and Starbucks Inc.’s cobranded Duetto credit card relationship is one of the strongest signals to date of the new pressure card issuers face in the increasingly constrained credit card industry.

But Michael Auriemma, president of Auriemma Consulting Group, tells PaymentsSource the split between two of the most-recognized U.S. brands is not necessarily a harbinger of the end of certain popular reward card programs. More likely, the Chase-Starbucks program, introduced in October 2003, no longer fit the goals of both companies as their business models shift under new economic pressures, he says.

“With the economic downturn and new card-industry regulations, issuers are facing new pressures to hit certain (profit) targets with their cobranded card programs, and apparently they were unable to make the elements of this deal work,” Auriemma says. “Chase is fully supporting its other rewards program and has enriched many of them. But it’s probably taking a close look at its cobranded partnerships to make sure they are all serving their best interests. For the ones that survive it will come down to the economic cost to the issuer, how much loyalty is being generated and the demographic groups they want to pursue.”

Chase this week is mailing letters to its Starbucks Card Duetto Visa cardholders informing them that the partnership between Chase and Starbucks is ending. Customers no longer can earn points toward Starbucks merchandise after March 31, and cardholders automatically will be switched to another no-annual-fee Chase credit card rewards program. New cards will arrive by April.

Some Duetto cardholders will receive the Chase Freedom card; others will receive the Chase Sapphire card.

The move was “a mutual decision by both parties not to renew the credit card relationship,” says a Chase spokesperson. Starbucks could not be reached for comment.

The Duetto card is unusual in that it has a dual-purse function, enabling cardholders to use the card as a credit card and also as a stored-value card for Starbucks points redeemable for Starbucks purchases at the point of sale.

Brian Riley, research director with TowerGroup, says the companies’ move is not a surprise, given the complexity of the Duetto card. Royal Bank of Canada continues to issue a Starbucks cobranded card in Canada, he notes. Royal Bank officials could not be reached for comment.

“Chase is not backing away from rewards programs, but it is moving things around to suit its strategic goals,” Riley says. “One new twist is Chase’s heavy emphasis of its own brand in all its advertising and marketing, including for cobranded cards.”

 Starbucks recently reintroduced its Gold Card loyalty program, which was not tied to the Duetto card. And Starbucks last fall began testing a bar code mobile-payments system with mFoundry Inc. (see story)

Business Week named the Duetto card to its Best Products list the year it was introduced because of its instant popularity. Nearly 28,000 customers preregistered for the card on the Starbucks Web site when it initially was announced.

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