Stored value cards have been much in the news over the last couple of weeks because of Suze Orman’s entrance into the marketplace with her “Approved Prepaid MasterCard.” What is a stored value card and when is it a good deal for you?
A third category of plastic
More and more, people are carrying various forms of plastic to pay bills and do everyday things instead of paying cash. It used to be so linear: Cash or credit. But now, not all plastic is the same: In addition to credit cards, there are debit cards, stored value cards, gift cards and now things that aren’t cards at all, like using your cell phone to pay for things.
Stored value cards in particular are the third category of plastic that’s now gaining prominence. These cards are branded by Discover, American Express, Visa and MasterCard — basically all the big players. They’re available at gas stations, drugstores, discount stores and over the web.
With stored value cards, you load money on them and use them again and again wherever traditional credit cards are accepted. Unlike a credit card, you can’t go into debt with a stored value card because you can only use however much money you put on the card.
Stored value cards can have zero fees to buy and use, or they could have exorbitant fees depending on the issuer. Federal law is silent on what happens in the event that a stored value card is stolen or lost. Some issuers will simply say it’s your problem and you’ll be out your money. Others will make you whole again.
Starbucks and enlightened capitalism
Starbucks has a stored value card that has been huge for the company and great for the customer. My thing is, “Why carry a stored value card when it comes with fees?” But Starbucks turns that on its head with an awesome reason to carry theirs: It offers rewards. The more you use the card, the more rewards you get, including free coffee.
The Wall Street Journal reports that the Starbucks card has actually increased store purchases a great deal. The amount of money on this prepaid card is in the billions. It is highest volume stored value card in the country.
Instead of making money on fees or breakage (aka money left dormant on cards) like a traditional gift card might, Starbucks uses enlightened self-interest — the best form of capitalism. They want to make money by you using the card, not by you forgetting about it in a drawer somewhere until it expires.
As a result, people become more loyal and spend more money. There’s an almost 90% correlation in increase in store sales and activation of cards in a store. The more people get it and reload it and use and use it again — and then reload it some more — the more freebies they get and the more money the company makes.
Not all plastic is created equal
Other companies are doing the same thing. Panera Bread has a rewards card that is just a loyalty card. They track your purchases and reward you with discounts or free food.
Not all plastic is created equal. Some is actually good for you. And Starbucks is doing it in the right way. It pays off for them and it pays off for you — unless you’re spending a lot more of your budget than you usually would on Starbucks stuff because of the stored value card!