What comes to your mind when you hear about Starbucks? Certainly, the coffee, right??Apparently,?Starbucks also works as an ¡®unregulated¡¯ bank! A coffee chain working as a bank? Confused?
Let¡¯s unfold this for you.
In 1971, Starbucks was started as a coffee beans seller company, by the trio, Jerry Baldwin, Zev Siegl, and Gordon Bowker in Seattle. Then in 1982, 29-year-old Howard Schultz was hired at Starbucks as the director of retail operations and marketing, who, along with his investors, purchased Starbucks in 1985-86 and decided to make Starbucks a coffee shop rather than a coffee beans store.
Within five years of Howard¡¯s takeover, Starbucks had grown to around 140 locations and filed paperwork to go public in 1992. The infusion of cash allowed Howard Schultz to accelerate his already rapid expansion plan. By 1996, Starbucks had opened its 1,000th store and doubled yet again with a total store count of nearly 2,500 in the next three years.
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As Starbucks kept on growing rapidly and gained a massive customer base due to its consistency, the company also hired its first CTO and launched the Starbucks loyalty card. The new focus on digital eventually paved the way for Starbucks to release its own app, as per Medium.
Over the years, more and more Starbucks customers, especially the regular ones, opted to deposit money in their Starbucks account for payment instead of paying with cash or credit card. Such payments tend to sometimes fetch you additional rewards or discounts as well.
So, thanks to the massive and growing size of Starbucks¡¯ customer loyalty, customers have not been afraid to keep some of their money in their Starbucks account, as they know they¡¯ll use it someday or the other.?
As per Medium, at the end of 2019, Starbucks app users held a collective $1.5 billion in balances in the Starbucks account. While this may not sound huge to everyone, it¡¯s significant when you consider that more than 3,900 banks across the U.S. have less than $1 billion in total assets, according to the FDIC.
If a customer forgets that deposited money in Starbucks account or it never gets used due to some reason, that is known as breakage income. As per Medium, Starbucks¡¯ annual report found breakage income of $125 million, $155.9 million, and $104.6 million in FY 2019, 2018, and 2017, respectively.
But it's important to remember that Starbucks is not a bank legally. So, Starbucks' balance can mostly not be withdrawn for cash like a real bank, and can only be used to purchase coffee. Hence, this allows the company to bypass financial regulations otherwise applicable to a regulated bank.
As per Medium, the CEO of South Korea¡¯s third-largest financial group had stated that Starbucks is an unregulated bank, not a mere coffee company. We cannot be sure what Starbucks will do next, or what its goals are but industry experts believe. Starbucks could get involved in asset management through its prepaid cards, as well as the currency exchange, loan, and insurance sectors. Another Bank official was quoted saying that Starbucks is a fintech firm.
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