Starbucks is Secretly a Massive Bank

I got a Starbucks gift card in Canada and one day traveled to the US and thought I'd try my luck with my gift card there. It worked! Turns out Starbucks is also a bit of a currency exchange as well.

What's even more sneaky is the way they somehow managed to make people believe they're drinking actual coffee.

This is what we call the "Flywheel" of the business. A series of small actions that compound the momentum of the product/service.

At the very least, I now grasp the concept of leverage. Creating

Another reason to support local coffee shops.

should also have mentioned this saves them on credit card non-percentage-based per-transaction fees (which are also higher for online transactions, a key savings for them when they introduced starbucks mobile ordering) - now they only pay these base fees once when you reload your card.

This has been the case for quite some time, even in India. I remember when wallets allowed you to load up money to spend. Everyone from Uber to Amazon has provided services of this kind. Paytm capitalized on this quite a bit before UPI came along. AFAIK in India we do have certain rules and laws that are applied on the companies who run these wallet like services. Even from a customer end, certain banking like requirements like KYC are mandatory for all customers. While Indians still prefer banks due to higher interest rates (2 - 6%), these wallet like services have been used quite a bit.

So interesting you made this, I recently started using the Starbucks app and got the ick from the needless step of preloading whole dollar amounts to a digital card/currency, instead of just paying my tab in the app from my bank card, directly. Now I know why. And those whole dollar amounts make it almost impossible to completely delete the digital currency from the app. This is as bad as when they tried rounding people's change up/down to get rid of pennies 😂

I imagine all the gift cards can work the same way. Target, Walmart, etc. These store get the cash right away to do what ever they wish until some of the cards are redeemed. Some get lost, forgotten or expire depending on their 'Terms of Service'.

I tried the Starbucks loyalty card when it first came out, and was shocked I had to load it up first before I can use it. Was not happy with that at all, I wanted to earn rewards every time I come in and buy a coffee. Since I don't normally go to Starbuck I felt like this was a rip off. I've got loyalty card for Caffe nero and Costa Coffee and I do not need to preload that card, I just scan the QR code, pay and get my stamp. And thats how it should be done.

Thank you. I pretty much assumed Starbucks and other prepaid cards used unspent balances to earn money. But beware of tying a debit/credit card to a prepaid card. A few years ago McDonalds Canada had an issue when hackers got access to their rewards card and from what I read at the time McDonalds Canada's attitude to customer's complaints was " SUCKS TO BE YOU! take it up with your bank" some customers lost thousands

I'd consider this as vertical integration, just like how Starbucks can have their own warehouses & eventually own coffee bean farms (upstream), they can also vertically integrate downstream to the financial institutions and of course, being subtle about it.

Thank you for spotlighting Starbucks' business practices in this episode! I was aware of their labor violations, but not of their Starbucks rewards investments.

Thank you for this video. How about one on insurance companies? I had a friend who was an agent. Company policy was to deny every initial claim. Larger claims, no matter how legitimate, would be denied multiple times. They calculate each claim as a loss & invest customer premiums for profit.

really love your videos appreciate all the work that goes into finding and explaining these types of topics

Hey congrats on the abc collaboration! You have come a long way since the android mod videos! Your videos are always very interesting to watch , keep up the good work!

If they’re behaving like banks they should regulated like banks. Plain and simple

00:00 Introduction 00:32 Starbucks Rewards System 01:30 Starbucks' Banking Operations 03:45 Gray Area of the Rewards System 04:43 Other Companies in the Financial Sector 06:03 Government Regulations 06:38 Conclusion

Poker Stars did something like this back in the day, but when they had liquidity issues and a lot of people tried to withdraw (almost like a poker bank run), it all collapsed. I don't think this will happen to Starbucks though. Unless someone held them to ransom... like... their employees who are NOT happy LOL

I think Nordstrom has had a VISA card for at least 15 years ago where you could earn points and priority to shop sales if you have a card. They do not have cash deposits as Starbucks has, but the ability to pre-purchase items during the Anniversary Sale before it even starts does certainly encourage spending, putting it on your card, and of course potentially paying interest and fees on the card, which I presume Nordstrom gets a cut off as part of a partnership with a bank. GoDaddy, the domain name registrar, e-commerce and web hosting company have now started offering merchant services to compete with the likes of Square and PayPal. A clever idea, as they can bundle it with their hosting. And of course, airlines long ago have been offering miles with cards, sort of side hustle that is vital to companies whose apparent core business is shaky, based on the repeated hand outs they require from the government. Great video! Congrats on the ABC deal!