Starbucks Customers Have A Balance Of $1.4 Billion On The App, Interest-Free Loan

Starbucks Customers Have A Balance Of $1.4 Billion On The App, Interest-Free Loan


A Starbucks Coffee shop in Harvard Square in Cambridge, Mass., Thursday, Dec. 13, 2018. (AP Photo/Charles Krupa)

Starbucks is getting an interest-free loan thanks to loyal customers who have left up to $1.4 billion of deposits lying idle in the company’s app at any given time with plans to redeem the money at a later date to buy mugs of coffee.

Starbucks has one of the most used payment apps in the U.S, with a reported 23 million annual U.S. users — more than Apple Pay or Google Pay.

This gives Starbuck access to an interest-free loan from customers that equates to roughly 4 percent of the company’s total liability, according to investor Neil Patel.

“Consumers love Starbucks so much that they’re willing to make a deposit to redeem coffee at an unknown future date and time,” Patel wrote in a piece published by The Motley Fool. “Starbucks is essentially gaining access to an interest-free line of credit.”

Starbucks reported generating $141 million in revenue in 2019. Approximately 10 percent of this was customers’ deposits in the app. The company refers to the unredeemed amount as “breakage” and uses historical data to estimate how much the company expects will never be redeemed.

“Starbucks is pretty much a bank: With $1.2B in deposits in cards / app!” Indigo Consulting tweeted @indigo_cons.

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Unlike traditional banks that are restricted in how they can use customer deposits, Starbuck has more leeway and can reinvest this money as an interest-free loan directly back into the business and for expansion opportunities. It also buffers the company’s free cash flow.

“We give them a billion and a half dollar loan, no interest, and only ask for it back when we want to buy some 90% margin coffee from em,” Colin Landforce tweeted @landforce. “Absolutely incredible.”

And what do customers get in return?

Starbucks runs a loyalty program that awards customers two stars for every dollar spent using its app. These stars can be used later for rewards such as free drinks.

To encourage more people to make deposits into the Starbucks app, rather than link it directly to their credit card, debit card, or mobile wallet, the company only awards one star for every dollar spent via direct payment from credit cards and other alternative payment methods.

“As a Starbucks customer myself, I’ve used the app countless times, and I’ve also bought physical gift cards numerous times for friends, “ Justine Bariso of Inc.com wrote.

“Is there a chance that some of my friends never cashed in on those cards? Sure. But have I gained back multifold through rewards I’ve gained through the app? Definitely.”

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