Starbucks (SBUX -4.05 percent) is getting loans from its customers without paying a cent in interest, thanks to people constantly using the company’s app. It’s one of the most used payment apps in the country, with its reported 23 million annual U.S. users topping that of Apple Pay (AAPL +1.18 percent) or Google Pay (GOOG +0.13 percent). Coffee loving drinkers oftentimes use the beverage giants virtual app by preloading their cards with cash from their checking accounts or credit cards, which presents a problem for low-income people who don’t have the same access to financial services.
Why This Matters: Taking interest-free loans and collecting a 10 percent tax on card deposits may be negligible to the high-income customers. However, with just 21 percent of African-Americans frequenting Starbucks, compared to 28 percent of whites and 49 percent of Asians, expanding this model with Black customers may prove challenging. Specifically if you consider 30 percent of Black people are underbanked and would not be able to load the Starbucks card.
10 percent of all cash deposited on Starbucks cards is pure profit for the coffee retailer
The coffee behemoth can use these defacto loans to expand its business, pay its dividend to shareholders, or pursue whatever financial opportunity comes their way. As if the interest-free loans were not enough, Starbucks’ annual report stated it collected $155.9 million in “breakage” from non-used card balances. This means 10 percent of all cash deposited on Starbucks cards is pure profit for the coffee retailer.
Situational Awareness: Companies like Starbucks and Walmart (WMT -3.35 percent), both with huge amounts of cash being loaned and lost to them through pre-loaded cards, should think about the ramifications of these practices as competitors like Google, Samsung (005930.KS +0.21%) and Apple Pay, are increasingly competing for a bigger share of transactions.
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