Starbuck continues its growth in loyalty and stored value programming, and as Abhinav Paliwal explains in Finextra, the “Starbucks is a bank” vision from Howard Schultz is true, making it a quiet player in the neo-banking industry:
By 2011, 1 in 4 Starbucks transactions (25%) were done via the revamped Starbucks Card program. Starbucks Rewards now has 24m+ members and spending on the Card program has exploded.
In the decade after the gift card launched (2001-2011), customers spent $10B total on it. Today, they load or reload $10B+ per year on the Card program (40-45% of the chain’s entire sales).
The perks and program are habit building. And customers happily keep the Card loaded with money for future consumption.
Most interestingly, Starbucks is essentially operating as a bank without the traditional regulations and its deposit volume would rank it in the upper echelon of U.S. banks:
For Starbucks, stored card value is effectively a “bank deposit”. It is recorded as a liability and Starbucks can use the funds immediately for the business. Stored value has fewer regulatory requirements, though:
• It can’t be redeemed for cash
• It doesn’t offer interest
• It isn’t insured
To put Starbucks ‘ $1B+ in stored value in context, consider that 85% of US banks have less than $1B in assets.
While the scope is clearly limited to Starbucks locations, the opportunity to continue to hold significant consumer share of wallet is a clear differentiator because of the deposited value held along with the volume of locations enabling easy consumer access to spend their stored value credit.
Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group