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This is called a float business in finance. Starbucks has more than a billion dollars in unredeemed balances, and they make ~$200 million per year in interest w

by ipnon 8mo ago

This is called a float business in finance. Starbucks has more than a billion dollars in unredeemed balances, and they make ~$200 million per year in interest with this cash. They're basically a bank with a coffee shop side hustle.

gcau 8mo ago
If they're intentionally causing the customer to have an unspendable balance, knowing that it's making them $200m/yr, how is that not fraud (or some kind of crime)? I'd expect atleast CA would do something about it.
- ipnon 8mo ago
  Customers agree to this when they accept the terms of the app. This is also how a debit or savings account at any bank works. Both businesses have sophisticated models to determine how and when customers are likely to make withdrawals, and based on these models they lend out the money based on acceptable risk criteria.
  - sunrunner 8mo ago
    Even if it is in the T&Cs, this one feels like it wouldn’t actually hold up? Expecting people to read those for most simple sign ups is already a high baseline, and Starbucks is not technically a banks and offers no consumer protections (FSCS or other), so that feels knowingly misleading, even if the total balances held are small per customer. IANAL, of course.
hakfoo 8mo ago
How are they getting 20% on a deposit that presumably could be called up at any time, and how can I get in on it when the stupid "High Yield" accounts I can find top out at around 4%?
- abustamam 8mo ago
  They may buy bonds or something like that.
  - deaux 8mo ago
    Yielding a yearly 20%?
    - williamdclt 8mo ago
      If anyone knows of _any_ investment yielding a yearly 20% reliably, I'd certainly be interested. If Starbucks figured that out, I don't know why they're bothering making coffee.
  - RexM 8mo ago
    For a 20% return in a year? The numbers given have to be incorrect.
    - chii 8mo ago
      probably 2%, not 20%.
    - abustamam 8mo ago
      Oh yeah I wasn't taking OPs number at face value
- fsckboy 8mo ago
  large businesses have large cash borrowing needs. if they borrow for free from their customers, it reduces the other borrowing they would need to do, so the rate to use is not what interest rate is available to you, but rather how much interest that Starbucks would need to pay for loans that size. Furthermore, whereas dividends are taxed twice (once as profit for the company and again as regular income to the shareholder), interest is a tax deduction to the company (which decreases their taxable profits) and for a percentage of debtholders that interest income is also taxed advantageously. probably doesn't come up to 20% (unless Starbucks is in junk bond territory) but it's higher than the investment rate of 4% that you're quoting.
deathanatos 8mo ago
A quick Google suggests in 2016 it was $1.17B, and earned $21M, or 1.79%. (via https://www.amminvest.com/starbucks-sbux-float/ https://www.amminvest.com/starbucks-sbux-float/ )
- sunrunner 8mo ago
  I mean I’d love to have a free $21M a year, but if you’re already Starbucks then somehow it feels like pocket change compared to your actual earnings and would question if it was worth the effort.
  - foepys 8mo ago
    But they also have over a billion cash at hand. I imagine at that scale and customers being private, the amount is pretty stable and Starbucks can just do whatever with this since it's extremely unlikely that customers demand all their money back at once.
    - awesome_dude 8mo ago
      Sorry, can they (customers) demand it back? I mean, once Starbucks have it, then the customers get it back via product (that has a margin included), or just leave it forever (free money!) I have a firm "No vouchers" rule because of this, the vouchers in my part of the world inexplicably "expire" if not used within a certain amount of time, cannot be redeemed for cash, and will not be honoured if the business goes belly up
      - consp 8mo ago
        According the laws here they have to. Doesn't mean they won't make it difficult. And it needs to be in a separate account and business (to avoid it being drawn into a bankruptcy). Not that this has ever stopped businesses from abusing it anyway. I doubt this voucher option is available in the Dutch app because of this but I didn't bother to check.
  - TylerE 8mo ago

by ipnon 8mo ago

gcau 8mo ago

If they're intentionally causing the customer to have an unspendable balance, knowing that it's making them $200m/yr, how is that not fraud (or some kind of crime)? I'd expect atleast CA would do something about it.

ipnon 8mo ago
Customers agree to this when they accept the terms of the app. This is also how a debit or savings account at any bank works. Both businesses have sophisticated models to determine how and when customers are likely to make withdrawals, and based on these models they lend out the money based on acceptable risk criteria.
- sunrunner 8mo ago
  Even if it is in the T&Cs, this one feels like it wouldn’t actually hold up? Expecting people to read those for most simple sign ups is already a high baseline, and Starbucks is not technically a banks and offers no consumer protections (FSCS or other), so that feels knowingly misleading, even if the total balances held are small per customer. IANAL, of course.

hakfoo 8mo ago

How are they getting 20% on a deposit that presumably could be called up at any time, and how can I get in on it when the stupid "High Yield" accounts I can find top out at around 4%?

abustamam 8mo ago
They may buy bonds or something like that.
- deaux 8mo ago
  Yielding a yearly 20%?
  - williamdclt 8mo ago
    If anyone knows of _any_ investment yielding a yearly 20% reliably, I'd certainly be interested. If Starbucks figured that out, I don't know why they're bothering making coffee.
- RexM 8mo ago
  For a 20% return in a year? The numbers given have to be incorrect.
  - chii 8mo ago
    probably 2%, not 20%.
  - abustamam 8mo ago
    Oh yeah I wasn't taking OPs number at face value
fsckboy 8mo ago
large businesses have large cash borrowing needs. if they borrow for free from their customers, it reduces the other borrowing they would need to do, so the rate to use is not what interest rate is available to you, but rather how much interest that Starbucks would need to pay for loans that size. Furthermore, whereas dividends are taxed twice (once as profit for the company and again as regular income to the shareholder), interest is a tax deduction to the company (which decreases their taxable profits) and for a percentage of debtholders that interest income is also taxed advantageously. probably doesn't come up to 20% (unless Starbucks is in junk bond territory) but it's higher than the investment rate of 4% that you're quoting.

deathanatos 8mo ago

A quick Google suggests in 2016 it was $1.17B, and earned $21M, or 1.79%. (via https://www.amminvest.com/starbucks-sbux-float/ https://www.amminvest.com/starbucks-sbux-float/ )

sunrunner 8mo ago
I mean I’d love to have a free $21M a year, but if you’re already Starbucks then somehow it feels like pocket change compared to your actual earnings and would question if it was worth the effort.
- foepys 8mo ago
  But they also have over a billion cash at hand. I imagine at that scale and customers being private, the amount is pretty stable and Starbucks can just do whatever with this since it's extremely unlikely that customers demand all their money back at once.
  - awesome_dude 8mo ago
    Sorry, can they (customers) demand it back? I mean, once Starbucks have it, then the customers get it back via product (that has a margin included), or just leave it forever (free money!) I have a firm "No vouchers" rule because of this, the vouchers in my part of the world inexplicably "expire" if not used within a certain amount of time, cannot be redeemed for cash, and will not be honoured if the business goes belly up
    - consp 8mo ago
      According the laws here they have to. Doesn't mean they won't make it difficult. And it needs to be in a separate account and business (to avoid it being drawn into a bankruptcy). Not that this has ever stopped businesses from abusing it anyway. I doubt this voucher option is available in the Dutch app because of this but I didn't bother to check.
- TylerE 8mo ago