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Why Starbucks is Actually a Bank

It’s pumpkin spice latte season and whether it’s highly adored or mocked for being “basic”, Starbucks is undeniably the most recognisable commercial coffee shop out there. However, you may not realise that Starbucks is also a bank, and they make more money doing so than selling coffee. Let me explain: 👇👇

The Brew:

• In the mid-2000s, Starbucks was doing well, and it expanded with thousands of stores worldwide.

• However, it had grown too big too fast and became sloppy.

• Then, the 2008 Financial Crisis hit hard and people were reluctant to spend on things they didn’t need like frappuccinos.

• Starbucks then brought back Howard Schultz as CEO.

• Shultz did 2 things to put Starbucks back on track, refocus on employee training for better customer satisfaction and introduce the Starbucks Card.

The Bank:

• With the Starbucks Card, customers add money to their Starbucks account.

• Instead of paying with cash or card, customers pay with their app and earn extra points by depositing & spending.

• More people made mobile payments on the Starbucks App compared to ApplePay in 2018.

• With the improved customer satisfaction, Starbucks gained customer loyalty. 

• Customers aren’t afraid to deposit $50 or $100 into their accounts. They know they’ll use it.

• Hence, Starbucks holds ~$2 billion in unused deposits from their customers’ accounts.

• For comparison, 80% of US banks have less than $1 billion in cash deposits.

• Starbucks is effectively getting a $2B loan at 0% interest.

The Bucks:

• Customers can’t withdraw cash from their accounts, so Starbucks doesn’t have to keep cash in reserve like standard banks. 

• Hence, they effectively have $2B to invest in the market, expand and acquire other companies.

• Starbucks has leverage, instead of pushing for an increase in coffee sales, they bank on customer loyalty, their customers lend them the cash.

• Not to mention 10% of this money will be forgotten or be unused by customers (ie. breakage).   

• So, Starbucks is not a bank, legally speaking, but operates like one without the regulations, requirements and restrictions of an actual bank.

The Starbucks business model goes to show how customer loyalty and leverage can put the “Bucks” in Starbucks.

Before you go...

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This series is brought to you by Lee Way (@leewaylau). He will be writing about political & societal issues, history, movies and music on What's Up Wednesday.