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Starbucks, monetary superpower
- jahbrewski 7y agoNot so sure it's due to "coffee addicts" so much as the fact that Starbucks gift cards became the perfect, generic, gift. How many times have you been on your way to X, needed to bring a gift, and just run into Walgreens?
- gamescodedogs 7y agoDefinitely. A mission saver for time immediate events, when you need a gift. Use it a couple of times.
- notatoad 7y agothe default setting on the starbucks app on my phone is to automatically top up every time the balance drops below $10. So starbucks basically has a permanent $10 loan from me. I'm sure i'm not the only one. actual gift cards given as gifts though are probably more likely to be used up and discarded, instead of being set to auto-reload and carry a balance.
- lotsofpulp 7y agoThat made me delete the app and avoid Starbucks. I was more than willing to pay with a cc, but they wanted me to give them an interest free loan?
- chrisseaton 7y agoDid you realise it was optional?
- lotsofpulp 7y agoWhen I used the app a couple years ago, it was to skip the in store line and it was forcing me to pay a minimum $5 or $10 for Starbucks credit, and then use that to pay for the $3 item I was planning on buying. Basically, asking me to pay $5 for $3 item since I go to Starbucks once every few years. I don’t know if it has changed.
- Japhy_Ryder 7y agoYikes. A permanent $10 loan towards bad coffee? I feel for you.
- jakewalker 7y agoThat may be part of it, but Starbucks has done a very good job of getting their regular customers to sign up for their loyalty program and online/app ordering, and to have them sign up for automatically replenishing (every time my balance goes below $10, load another $25) gift card accounts to use both features.
- deleted 7y ago[deleted]
- cryptoz 7y agoAnecdotally, I've spent maybe ~$5,000 at starbucks in my life. I used a gift card for ~$25 of that and I have never given one as a gift. For me, it is the predictable atmosphere, the AC, the WiFi, the coffee itself, the hours of operation, and the location convenience that draws my money, not the gift cards. I would be surprised to learn I'm in the minority there, as I figured I was a common starbucks demographic / customer target.
- Scoundreller 7y agoTheir washrooms are usually better than most. And they’re the only chain restaurant/café whose employees don’t appear clinically depressed at every location. I hope it’s because they’re actually happy.
- hombre_fatal 7y agoAnd the coffee tastes fine. I'm not at Starbucks to have my mind blown on coffee every day. I'm such a daily coffee drinker that I'm far beyond masturbating to it. It's more like beer to me: I'm not drinking Corona at the beach because Corona is the pinnacle of beverages. People who like to be seen pooping on Starbucks to me are like people who need to have it known that there are indeed better beers in the world when saddled with a Corona at a social event: Yes, we know, but that's not why we're here. Also, Starbucks is the only cafe I can find that ever has couches. No coffee is worth sitting in those tiny rigid chairs that most cafes have. Also, I don't feel guilty working out of a Starbucks for multiple hours compared to tiny cafes.
- kube-system 7y agoHave you used their rewards program? You'll usually carry some sort of a balance to do so, and many people use the program.
- bitwize 7y agoStarbucks coffee and espresso drinks are "will do in a pinch" for me. I'd much rather frequent a local coffee shop with better espresso than what Starbucks serves. I think Starbucks makes more money these days from its sugary cold drinks than its hot coffee/tea/espresso.
- jddj 7y agoFor me too. Starbucks is train station or airport "ehh, what did I expect?" coffee.
- duskwuff 7y agoIt's the McDonalds of coffee. Rarely surprising in either a good way or a bad way.
- xeromal 7y agoI think that for all of their drinks but the coldbrew. They have solid cold brew and I've tried nearly every artisan coffee shop in DTLA and the valley
- kvgr 7y agoYup, even Costa Coffee has decent cold brew. In my opinion it is very hard to make a bad cold brew, compared to espresso. You just take OK coffee and let it sit for 12 hours. Bingo. With espresso - in Starbucks the make the "american espresso" that quite sucks. It is large and burned. Also Starbucks french press is pretty decent and good value for money, but it is on "secret" menu and you need to ask for it.
- xeromal 7y agoYeah, I think so too, but for some reason higher end shops try to make special coldbrew and messing it up. It's not complicated. Just takes some planning.
- afarrell 7y agoThese and amazon gift cards are indeed a medium of exchange.
- arafa 7y agoThey can also be used for money laundering, as a result.
- blacksmith_tb 7y agoI always assume when I see products listed on AMZN with bizarrely inflated prices that someone is fast-tracking that, for example[1]. 1: https://www.theguardian.com/books/2018/apr/27/fake-books-sold-amazon-money-laundering https://www.theguardian.com/books/2018/apr/27/fake-books-sol...
- gruez 7y agoHow would you launder money with starbucks cards? Sure, you can transfer balances with them, but that alone doesn't help you launder money. According to the treasury dept: >First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean". I don't see how starbucks cards can be used in any of those steps.
- ska 7y agoBasically anything that is directly exchangeable for cash or useful goods and services is useful for money laundering, I would imagine. If you can fill one with stolen CC details and then either cash out in a store or sell for a discount, that's a pretty basic launder, no?
- drewg123 7y agoBeing able to cash out a gift card seems like an interesting way to get a cash advance on your credit card, without paying cash advance fees. Surely the credit card companies are on to this, and prevent it somehow?
- 8bitben 7y agoAs for Wayne, while he may earn an implicit interest return in the form of Starbucks points, by forgoing a card payment he's giving up on the associated cash-back or airline points. I don't agree with this. While merchants pay interchange fees based on the value of card transactions (plus a flat rate per transaction IIRC), as a cardholder rewards are earned only as a percentage of the total purchase, and are not influenced by the number of transactions. So I earn 4% back on the value of all my Starbucks transactions, regardless of whether the purchase is made via the app or my card. I am willing to forgo a couple pennies in interest on my rolling $15-20 balance to have the convenience of mobile ordering. If you use the system efficiently, I see it as a net value add as a customer.
- kube-system 7y agoI thought the same thing. I fill my Starbucks balance up with a credit card, and I earn points on that. And that money is basically a 30 day free loan anyway. It's basically a leveraged investment payable in coffee with almost zero risk.
- ben1040 7y agoYep. And you're still getting any special merchant-specific rewards the card company might offer you. I just reloaded my Starbucks card using my Amex, and Amex had a promo that offered a 10% credit back on Starbucks purchases, up to $5. So I threw $50 on my card, I get 10% off the coffee, and earn back a bit on the Starbucks reward points.
- notatoad 7y ago>Since each credit card payment will cost Starbucks 1-2% in interchange fees paid to the card networks and banks, the company saves a lot of money by guiding customers to its payments app. i'm not sure this is true. they're definitely saving something on the interchange, but not 1-2%. reloading your starbucks card is done by a credit card payment, so they're still paying that percentage fee one way or another.
- gamblor956 7y agoThey're not saving on the % fee, they're saving on the fixed portion of the interchange fee, which is between $0.10 and $1.00 depending on the card.
- benmanns 7y agoYeah the savings would be on the flat rate (Stripe charges $0.30, who knows that Starbucks pays). Grocery stores, convenience stores, etc, are also not selling Starbucks gift cards for free.
- ben1040 7y agoThe part on "breakage" was interesting. I had recently searched my name on my state's unclaimed property bureau and found I had about $15 and change to claim. I filed the claim form, and when I got the check, the checkstub said it was from an unused Starbucks account balance. If last year they had $155 million from abandoned accounts that they could legally just pocket, I wonder how much they also had to send over to various states' unclaimed property offices.
- cbhl 7y agoThe magic trick here is that Starbucks Rewards -- their "free" loyalty program -- requires using a Starbucks Card (virtual or physical) in order to make your purchases. Under the old system (prior to ~Apr 2019) you had to make $150 in purchases annually to get "Gold" status, and then you got a free reward after every ~$62.50 in Starbucks spending. The new program has no minimum, and tiered rewards between $12.50 and $200 of spending.
- rohansingh 7y agoThat's important, but it's not really the core of why the Starbucks Card program is so huge. I worked on the team around 2009, before the rewards program rolled out. The card program was already huge at that point, so the rewards are not the primary draw.
- chipperyman573 7y agoYou can get a virtual card in the app and "pay" with it by loading on the exact amount you need to pay with before checking out (or just buying it in the app). So it "needs" a card, but that's really just a weird thing they didn't abstract from the app, it's not actually an inconvenience (at least to me)
- lxgr 7y agoAs far as I remember, there is no way to load an exact amount, so you always end up with some spare change in the app. I assume that this is somewhat of an incentive to quite a few customers: That almost-forgotten balance almost feels like a discount towards the next purchase, not so much as a free loan to Starbucks.
- Diederich 7y ago15 or so years ago, my manager at WalMart Stores Information Systems Division was previously a programmer on one of the many finance related teams. Specifically, she worked with gift cards, and one time I asked her how different state laws affected how much money WalMart could recover from those cards. She was delighted to elaborate! I don't recall the particulars of the answer, but it was eye-opening. She said that they had a team of lawyers whose job was to (try to) keep track of all of the laws, all over the world, that had any bearing on this topic. Not only was it state and federal law, but also county and even city law. (And territories...and military bases....etc.) There were some stipulations about where the card was bought AND where the card was used, if in different jurisdictions. Many of the laws were contradictory. In some cases, none of the money could be reclaimed, and would revert to different local funds. There were effectively endless permutations. She and her team had to decide what of all of this they would model with code. They could not model all of it, so there was a hybrid of some actions being taken with the code, and the code outputting reports that humans would use to make decisions about actions. It was eye opening to consider how legally complex many such 'simple' things, like gift cards, are when implemented on a wide scale.
- ryanianian 7y agoAnything anything involving money is complicated to a fractal degree. I worked on a system to populate data into an large (well-known international) retail site's order database. Representing the simplest possible concept of "this order had no sales tax" took 18 rows across 4 tables. The complexity was due to similar things you point out - the system had to support combinatorically large numbers of cases and even the concept of "nothing" had to be encoded in dozens of different ways.
- modo_ 7y agoI'm curious if a rules engine [1] could be used instead of implementing the logic in code for something this complicated? Could fuzzy logic be used to build a case when the laws become contradictory? Maybe after the case is built it could be passed on to legal counsel for approval. [1]: https://en.wikipedia.org/wiki/Business_rules_engine https://en.wikipedia.org/wiki/Business_rules_engine
- sarhus 7y agoOut of curiosity, the author mentions a possible alliance with another companies (McDonald for example) that would share savings, breakage, and data. Anyone would know if this kind of idea is behind or maybe related to Facebook Libra?
- aasasd 7y agoWhat's to know there? Obviously Libra will rack up loads of data on people's spending. Obviously any kind of financial middleman organization these days immediately invests money that it gets from clients for virtual bucks. (I'm surprised to learn that PayPal is limited in this regard, but maybe this report isn't the Singapore PayPal which serves European accounts?)
- foota 7y agoThe best way to go about this is to use your credit card to reload your starbucks balance, get points on the card and from the starbucks purchase. Relatedly they've tried to sell me on the starbucks credit card but it's a 1-2% difference in rewards. (nto that I spend quite enough on coffee for it to come out to much, but it's the theory of it that's fun)
- nlawalker 7y agoOne use of Starbucks gift cards not mentioned in the article: cashing out foreign currency. "When you’re leaving a foreign country and still have some of the local currency, take it to a Starbucks and load it onto a gift card. You can use the card later in the UK, USA, Canada, Australia, Mexico, and the Republic of Ireland." https://lifehacker.com/put-leftover-foreign-currency-on-a-starbucks-gift-card-1833095163 https://lifehacker.com/put-leftover-foreign-currency-on-a-st...
- bdamm 7y agoUseful tip, thanks! Related is sending Amazon gift cards from the Amazon of their country to people who live in a different country, so that you can effectively send cash without actually sending cash or requiring the receiver to sign up for Paypal etc. The only gotcha is you have to do it using the flavor of Amazon that is the receiver's Amazon, but since Amazon ports your user account and payment information between different Amazons and lets you use your native currency to buy Amazon cards in a different currency, it works.
- peterwwillis 7y agoWhich is also why Amazon is one of the most popular money laundering sites. Buy goods with stolen cards, ship them somewhere, resell for profit (both gift cards and real merch)
- ghaff 7y agoEven at a small-scale legitimate level, Amazon's useful as a sort of pseudo-cash/petty change bank. They're often a good way to cash out reward points of various types or as a "bank" to convert things like Visa gift cards so you don't need to keep track of them. I have noticed though that Amazon seems to have recognized that people like them for this sort of thing and their point conversion rates often carry a bit of a premium and certainly aren't as good as you can get from some more niche retailers.
- deleted 7y ago[deleted]
- gumby 7y ago> But the only way to cash out of Starbucks balances is to buy a coffee--a promise that Starbucks can always keep! By the way this isn't true in California: by law all stored value and store-credit cards last for 10 years and can be cashed out.
- ovao 7y agoBut how does one cash them out?
- patio11 7y agoYou go to any Starbucks and ask the person operating the register to cash you out. They push the button designed to facilitate this.
- aidenn0 7y agoThey are only required by law to cash out gift cards with a balance of less than $10. [edit] Source: https://www.dca.ca.gov/publications/legal_guides/s_11.shtml https://www.dca.ca.gov/publications/legal_guides/s_11.shtml
- asavadatti 7y agoOnly for gift cards under $10 IIRC
- dragonwriter 7y ago> By the way this isn't true in California: by law all stored value and store-credit cards last for 10 years and can be cashed out. Correction: cannot have any expiration date (not “lasts for 10 years”), service/dormancy fee, and (if purchased after 2007) must be permitted to be cashed out if the remaining balance is under $10. https://www.dca.ca.gov/publications/legal_guides/s_11.shtml https://www.dca.ca.gov/publications/legal_guides/s_11.shtml
- maurimo 7y agoI keep wondering why people buy Amazon/Netflix Gift cards. Great, you converted 50$ into 50$ that can only be used on Amazon, and people may end up not using at all. This is also financing with negative interest rate.
- hrktb 7y agoIt’s super niche, but I have two specific use cases: - loading an account family members have access to, without linking to the main credit card. - loading foreign accounts, where small transactions are painful with most cards.
- nlawalker 7y agoIt's $50 that can only be used on Amazon, but for a lot of people that's a pretty small limitation, especially relative to the utility of being able to transmit it over pretty much any medium.
- lwf 7y agoIf you don't have a credit or debit card it's one of the only ways to pay for the service, save asking to borrow a friend's card. According to the FDIC, 6.5% of American households lacked a bank account at all in 2017.[1] [1]: https://www.fdic.gov/householdsurvey/ https://www.fdic.gov/householdsurvey/
- airstrike 7y agoBut you could always go with one those reloadable debit cards, no? Though those usually come with a fixed setup fee of, say, $5
- banana_giraffe 7y agoIt's actually fairly hard to get money onto those without paying a fee (if you don't have a bank account). Most of the obvious ways to get money onto them involve "Visa ReadyLink", and that comes with a service fee from $2 to $5. If I recall correctly, some even have monthly fees if they get below a certain level. Amazon gift cards can be purchased without a fee most of the time, and with less friction in the store then actually dealing with the service desk in the store that does ReadyLink.
- monikgandhi 7y agoThis is mind blowing. I never thought about this while ordering coffee through Starbucks app. It’s following the same model as Robinhood.
- js2 7y agoJust today, I uncovered an old gift card from a dept store called Rich's, which apparently became part of Macy's. I have no idea how old the card is, but it has a year 2000 logo on it. The card has a 800 number on it to check its status. So I called it and entered the card number. It was unrecognized. :-( It was probably a $50 holiday gift to me at some point. I wonder whose pocket that money ended up in? What a racket gift cards are.
- pweezy 7y agoI've always thought that the main reason for Starbucks to push their card and reward program is to save on per-transaction credit card fees. By my understanding, in the US, typical merchant fees to accept a card are a flat $0.20-$0.30 transaction fee, plus 2-3% of the total dollar amount. The article mentions the interchange fee (the 2-3%), but for small purchases the transaction fee is more significant. I assume the majority of purchases are individuals buying a single beverage. If an average drink costs $4, a $0.30 transaction fee alone is eating 7.5% of your gross revenue. That's an absolutely huge amount. Even if Starbucks cards are bought/topped up with a credit card, that $0.30 fee is being amortized over $20+ worth of product instead of $4 worth. I also figured this tied in with Starbucks' contract with Square some years back - as one of Square's value props is eliminating the per-transaction fee for credit cards. Not sure why that was cancelled, though.
- dave5104 7y ago> By my understanding, in the US, typical merchant fees to accept a card are a flat $0.20-$0.30 transaction fee, plus 2-3% of the total dollar amount. That's correct, generally. But those can always be negotiated. And Starbucks probably has the volume to have some negotiating power. I'd be surprised if they didn't have a lower rate.
- ukoki 7y agoWhat are they negotiating against though? Wouldn't the BATNA be to not accept credit cards which be suicide for a retail company?
- JetSpiegel 7y agoAccepting some cards and not others? That could potentially move the market, at Starbucks' scale.
- burtonator 7y agoThis is a great example of a HUGE competitive advantage Starbucks has over regular merchants that's very unfair. Smaller merchants don't get the scale advantages here...
- buboard 7y ago> each of these companies could simply pursue their own independent stored-value liability programs. But wouldn't an alliance be better? Obviously it woudln't. He even provides the evidence why not. People top up their starbucks because they need coffee every day - it's basically a subscription , but they dont buy the same stuff at walmart every day - and the cost levels are widely different. Something similar happens to virtual credits for different games - Experts will tell you that it is better to have a separate economy for each game rather than one unified economy - and you should not even allow players to pay each other. Same reason why stock photo sites want you to buy credits for each one of them, or why each newspaper wants a separate subscription. The "Breakage" breaks up when the economies are unified.
- tomrod 7y agoYep -- Starbucks and similar typically hold these in big banks, who pay interest on the deposits. They're called "brokered deposits" in finance, and they have all kinds of restrictions. Banks like them because they have predictable stability to lend against.
- crazygringo 7y agoIt's always annoyed me that buying a Starbucks coffee through their app (to skip the line) requires pre-loading a virtual card from your credit card, minimum $10 even if it's for just a $2.50 coffee. Unlike most other apps (e.g. McDonald's) that simply run each transaction through Apple Pay. Just by virtue of using the app, I'll always have some leftover money Starbucks will one day keep. (I'm not aware of any way to revert a balance back to cash.)
- tomjakubowski 7y ago> (I'm not aware of any way to revert a balance back to cash.) If you can get the balance under $10 and stop at a store in California, they'll exchange it for cash. https://www.dca.ca.gov/publications/legal_guides/s_11.shtml https://www.dca.ca.gov/publications/legal_guides/s_11.shtml
- anonu 7y agoMy Starbucks app is still linked to my credit card. So they must still pay the interchange fee... Also why would Starbucks form an alliance with McDonald's? They compete in the same market. They both sell coffee and breakfast sandwiches... Would be a bad idea for sbux.
- Scoundreller 7y agoCanadien income tax law lets you give 2 tax-free gifts of up to $500 value. Can’t be cash. So, smart employers will celebrate the new year and some other random holiday with $500 in gift cards.
- ic4l 7y agoBack in 2012 I found an exploit [1] that let you fabricate card balances. They fixed it 2012, but in 2015 another person found the same issue [2]. I have no idea why they would not be using transactions, and make the same mistake twice. It really does make me wonder how much FAKE money is inside of that BILLION DOLLAR pot. I also found similar issues in 2017 for their Thailand division. But this is at least understandable as Thailand operates its own Gift Card system. [1] https://chadscira.com/post/556999d91cb00914380006ee/Re-Starbucks-unlimited-coffee https://chadscira.com/post/556999d91cb00914380006ee/Re-Starb... [2] https://sakurity.com/blog/2015/05/21/starbucks.html https://sakurity.com/blog/2015/05/21/starbucks.html
- sudhirj 7y agoShameless plug, If anyone’s building one of these cards, I made a wallet microservice (https://github.com/sudhirj/notecase https://github.com/sudhirj/notecase) for a movie ticket site I work on (justickets.in) It’ll let you track recharges, spends and balances for your customers, we use it for nearly a million customers.
- sudhirj 7y agoDocs are here https://notecase.docs.apiary.io https://notecase.docs.apiary.io
- andy_ppp 7y agoYes, they also dodge tax in dastardly ways and as such I'd rather not be one of their users.
- ikeboy 7y ago>Keep in mind that each payment made through the Starbucks app is a payment that isn't made by credit card. Since each credit card payment will cost Starbucks 1-2% in interchange fees paid to the card networks and banks, the company saves a lot of money by guiding customers to its payments app Most of those gift cards are purchased by credit card as well. This point is incorrect.