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I'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 understandin
by pweezy 7y ago
I'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...
- kortilla 7y agoUnfair because?
- bouncycastle 7y agoIt's the "economies of scale" effect https://en.wikipedia.org/wiki/Economies_of_scale https://en.wikipedia.org/wiki/Economies_of_scale The big players always have an advantage. Although, having tried Starbucks coffee, I have to say it's terrible! Maybe it's the way it's made with an automatic machine and a disinterested barista, or perhaps the beans are over-roasted and mass produced in a factory. Just about any small coffee shop makes better espresso based coffee than them, especially in Sydney, Australia, where Starbucks continues to struggle to gain a foothold.
- paganel 7y agoTo be honest some of those smaller merchants can also make better coffee than Starbucks, and as such they can ask for slightly higher prices for said better coffee without their customers complaining.
- seanmcdirmid 7y agoNo one goes to Starbucks for the high quality of their coffee. They go for convenience, maybe atmosphere (a safe comfortable place to hang for awhile), and such. But if you want great coffee, that is a trade off that doesn’t favor Starbucks (like a burger conesuire at McDonald’s).
- lsc 7y ago>maybe atmosphere (a safe comfortable place to hang for awhile), So I mean, coffee shops in general, yes. But at least in urban areas? Starbucks seems to be really well-designed to maximize throughput and profit; they have fewer seats, usually per cup of coffee sold than the smaller coffee places, and generally seem to be set up for 'to go'. It's one of those things where if I look at it as an investor, I really like it, but if I look at it as a consumer, the opposite.
- dannyw 7y agoBig players like Starbucks pay per transaction fees in the range of zero.