Coffee you can bank on

As per historical data, 10% of the money in the reward wallets and unredeemed cards will never be used—by the customers. In 2015, those unused cards amounted to $39.3 million, equivalent to the profit generated in an entire year by 320 company-owned Starbucks stores. That is, Starbucks has free reign over the unredeemed cash, which goes straight to the cash reserve.

All these strategic advances, and all Starbucks needs to keep ready on hand is coffee, not money, because there’s no question of withdrawals. Despite all the theoretical parallels with a bank, it’s still a coffee shop.

Given the prosperity of Starbucks, many companies have tried to emulate the model with varying degrees of success. PayPal too, receives money in its wallets, to the tune of $20B, but it has to keep cash in reserve in case a few customers withdraw their cash en masse. Walmart has also tried to use the prepaid gift cards method, although they haven’t been able to gather up as much surplus. They do 20x as much in sales as Starbucks ($500B vs. Starbucks’ $25B) but have a similar amount of gift card cash in its bank ($1.9B).

Traditional banks are wary of this upheaval. Korean bank Hana Financial Group Chairman Kim Jung-tai expressed his concerns, saying that Starbucks was no longer a mere coffee company but an unregulated bank.

So, with everything already in place, what stops the brand from putting ‘bank’ ahead of its name and making it official? It wouldn’t even be a pioneer, either. In 2019, Capitol One bank had cafes sprouting up, wherein ‘Ambassadors’ help you open bank accounts. Therefore, the cafes are areas people are likely more comfortable going to, which incentivizes consumers to visit their ‘bank’ as well. Starbucks already has a loyal customer base, so if they did decide to go that way, they’d have a huge advantage. This head start that Starbucks has as a crowd favorite is giving traditional bank owners some sleepless nights.

But the maximum the coffee chain has advanced in this direction is to create a ‘Starbucks Rewards Visa Credit Card’ in 2016, which allows you to earn stars everywhere, not just Starbucks outlets. In any case, Starbucks is content with being the ‘cool coffee shop’ it is, making moolah and using it to their advantage without the regulatory burdens of a bank.

At the end of the day, it is a disservice to call Starbucks either just a coffee shop or a bank. The system here is a blend of deliberate and accidental genius, much like their blended Espresso Frappuccino, determined to stay classic in a time of fleeting trends.