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When it comes to coffee, I’m sure the first brand many people would think of is Starbucks. Whether you are a coffee lover or not, this is the top-of-mind awareness that Starbucks commands – a sign of how powerful its brand is around the world.
With over 34,000 stores globally, Starbucks is easily the largest coffee chain on the planet. At the same time, I discovered, when doing my research, that Starbucks also operates like a bank. Yet the company has never explicitly mentioned any plans to enter the banking industry in the past.
To profit, the bank then loans these funds to other customers at a higher interest (interest income) and earns a spread. Alternatively, banks can utilise funds to invest in the equity, bond, or property markets for dividends or capital gains. This is categorised as non-interest income for banks.
As a Starbucks customer, you might have come across its loyalty program called Starbucks Rewards. If you’re new to how it works, you can add money into your Starbucks Rewards account via a credit card or Starbucks gift cards. The prepaid funds in the app can then be used to make payments to earn loyalty points (known as Stars) which can then be redeemed for complimentary food/drinks or discounts.
While Starbucks is undoubtedly a coffee chain, it also operates like a bank due to its loyalty programme and customer deposits. Because of its global scale and digital infrastructure, there are potential fintech opportunities that Starbucks could explore, but it remains to be seen whether the company will embrace that future. But if it over does so, it could allow Starbucks to unlock additional revenue streams and expand into markets outside of coffee.
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Analysis – “Becoming a bank means having enough of other people’s money so that you can leverage it to generate more money for yourself. It looks like Starbucks discovered that they were in a great position to do that for themselves. I wonder though if Starbucks stumbled upon this avenue after selling so many gift cards, or if they created a gift card-giving clientele because they realized they could leverage other people’s money. There is a chart that shows that Starbucks has more capital than many banks, I find the chart a little misleading as though it is true, they are still very far down on the totem poll of largest banks. Starbucks does not even have 2 billion dollars, while JPMorgan Chase which is the leading bank has over 3.7 trillion in assets. 2 billion dollars does not even get you on the top 100 banks, and after doing some interviews it seems as though you only need as little as $35,000 dollars to become a “bank”.” – Easton Nguyen
