Starbucks is the world’s largest coffeehouse company in the world, with more than 32.000 stores across the globe in 2020 [1]. It can also be argued that it is one of the most well-known coffeehouse companies in the world. However, what most people don’t realize is that Starbucks, since it launched its Starbucks loyalty app, has characteristics of a bank. They even hold more cash than many traditional American banks, without being regulated as one.
In 2011, Starbucks launched it mobile application [2]. This app – often referred to as a loyalty app – allows users to collect rewards points, which in turn can be converted for free drinks or discounts. Since 2015, the app has been responsible for 30% of Starbucks’ total sales [3]. Nowadays, you can also add money to your Starbucks account and pay with the app instead of paying cash or with a credit card. Starbucks promotes this way of paying by giving you twice the number of rewards compared to payments without the app [3]. And they have a good reason to do so.
Because so many customers use the app – it’s on of the most popular restaurant rewards app in the industry [5] – Starbucks has access to an enormous amount of deposited money: 1.5 billion dollars at the end of 2019 to be precise [4]. To put this into perspective: more than 3.900 traditional American banks have less than 1 billion dollars in total assets. Starbucks even earns on these deposits. About 10% of this money will never be used because people forget it, also called breakage.
But even if people don’t forget to use their deposits, they can never withdraw it and can only exchange it for coffee. Therefore, Starbucks doesn’t have to obey to financial regulations [4]. Banks need to keep a certain amount of deposited money to have it available when customers want to withdraw it. Starbucks doesn’t, allowing them to spend the deposited money however they like. They could use directly to invest in the market or on expending, without ever having to worry to give it back.
Starbucks has all the elements to become a mobile payment platform. They even partnered with cryptocurrency trading platform Bakkt [6] to create a consumer app that will allow merchants and customers to buy, sell, store and spend digital assets.
Looking at all the things above, I believe Starbucks is moving away from a traditional value chain company selling coffee and becoming a platform based fintech company. Korean banking groups are even worried that Starbucks could threaten their survival in the future [7]. I’m curious to hear what kind of company you think Starbucks is and what their future will hold.
References
[3] https://www.scroogemarketer.com/post/starbucks-bank-the-bank-of-coffee
[4] https://medium.com/e-cell-vit/how-starbucks-is-also-a-bank-80e8b65cf1d4
[5] https://themanifest.com/app-development/blog/food-delivery-restaurant-loyalty-apps
[6] https://www.fool.com/investing/2020/02/04/does-starbucks-want-to-be-your-bank.aspx
[7] https://www.koreatimes.co.kr/www/biz/2020/01/126_282213.html
