How Starbucks Functions As An Unregulated Bank


There are a few things in this world that go so hand-in-hand that it eventually becomes unfathomable to use the two things or words separately.

For example, when we hear “Coffee” our mind takes us straight through the doors of a Starbucks, filled with the aroma of coffee beans, stimulating our senses to want to order our favorite beverages.

This renowned brand didn’t have it this easy back in 2008, when recession hit America and just like every other company, Starbucks was in a bit of a turmoil. The company reorganized itself to the optimum by appointing fresh talent, amongst them was their CEO Howard Schultz, who is primarily responsible for making Starbucks a global name.

Schultz made some drastic changes in the company, some of which are still used across the world even today.

One of the initiatives was the Starbucks Rewards System.

How Does the Starbucks Reward System Work?

To make transactions cashless and easier, you can deposit money in your Starbucks Account on the App and if you use the balance for buying coffee, you get rewarded in terms of reward points, which could be redeemed at a later date.

Starbucks being the global brand that it is, 41% of its customers pay using the Starbucks App.

According to reports, a total of $1.5 Billion is lying in these Starbucks Accounts all over the world.

How is the initiative benefitting Starbucks?

A smart investor never lets hid money sit idle. Even if he/she may be sitting idle, an investor is always looking at opportunities to make their money grow.

Similarly, instead of letting the money in the Starbucks Account sit idle, the company decided to use it for its investing ventures.

So, whenever you put money in the account, you’re actually lending it to Starbucks at 0% interest!

How is Starbucks functioning like an unregulated bank?

85% of the banks in USA have less than $1Billion Assets whilst Starbucks has a total of $1.5 Billion and growing. This makes Starbucks operations like those of an unregulated bank.

The money on the app can only be used to purchase coffee and can never be withdrawn as cash. This allows Starbucks to bypass many financial regulations that are otherwise binding on other banks.

Starbucks Reward System is indeed a stroke of genius. It has helped the brand grow even during periods of recession as the coffee chains were no longer solely dependent on market purchases.

Banks are faced with fluctuating interest rates and the interest it needs to lay aside for all its investors, but Starbucks has no such reason to worry because not only is the lending at 0%, but it is also done in a very obscure way which seldom commands attention.

The ingenuity puts Starbucks at the top of the financial charts, surpassing some of the international banks, who are indeed concerned about the future potential of the brand in the financial space.


Written By - Tushna Choksey



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