Duetto Casualty of Core Shift

The severing of JPMorgan Chase & Co. and Starbucks Inc.'s cobranded Duetto credit card relationship is another sign of the industry's refocusing on core products.

Last week JPMorgan Chase mailed letters to its Starbucks Card Duetto Visa cardholders informing them that the partnership between the banking company and the coffee chain was ending. The Duetto card is unusual in that it has a dual-purse function — it can be used as a credit card and as a stored-value card for Starbucks points redeemable for Starbucks purchases at the point of sale.

"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," said Michael Auriemma, the president of Auriemma Consulting Group.

The Chase-Starbucks program, launched in October 2003, likely no longer fit the goals of the two companies, which are shifting their business models because of the struggling economy, Auriemma said. "Chase is fully supporting its other rewards program and has enriched many of them," he said. "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."

After March 31 Duetto cardholders will no longer earn points toward Starbucks merchandise; they will automatically be switched to another no-annual-fee JPMorgan Chase credit card rewards program, with the nw cards to arrive by April. Some Duetto cardholders will receive the Chase Freedom card and others will receive the Chase Sapphire card.

The move was "a mutual decision by both parties not to renew the credit card relationship," a JPMorgan Chase representative said. Starbucks did not return calls.

Brian Riley, research director with TowerGroup, said the companies' move is not a surprise given the complexity of the Duetto card.

"Chase is not backing away from rewards programs, but it is moving things around to suit its strategic goals," Riley said. "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.

The Duetto card was named to BusinessWeek's Best Products list the year it was rolled out. It was instantly popular: About 28,000 customers preregistered for the card on the Starbucks Web site.

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