Why Starbucks is a Bank

By Kabir Sankaran Rajendra

Written Tue June 8, 2021

Updated 12:09 AM ET, Wed Jun 9, 2021


What company is mocked and made fun of, dominates their industry, is a multinational chain that has taught a whole new language of ordering to their customers and is loved by trillions of yearly visits? This company is none other than Starbucks. All across Instagram, Starbucks takes over the social media realm. One would say they are in a league of their own. Now, you may have pictured Starbucks as merely an extravagant drink seller, but they have slowly ventured into the banking industry.

As of 2019, Starbucks held over 1.6 billion USD in assets. So how did Starbucks, a coffeehouse,  grow to compete with Paypal and other banks? This will take us back a few years.

As soon as Starbucks was founded (1971), it knew what type of business they wanted to be. It was not just selling drinks, but it was the creation of the “Starbucks Experience.” The founders of Starbucks noticed something. People would wake up, groggily grab a morning coffee in the nick of time to show up at work on time. This is what they intended on eliminating. First, by mandating baristas to converse with customers, introduced an unheard-of feeling. Instead of dark and lull, cafes were homely, full of vivid colors, and even included free wifi! Almost any drink you could ponder, Starbucks could make.

As Starbucks’ popularity grew throughout the 1990s to the early 2000s, Starbucks noticed a gap in the market. As the number of social media users increased, people wanted a space to be able to relax and post pictures of themselves. Starbucks capitalized on this and continued to grow.

By not franchising, Starbucks could create an even better Starbucks experience while managing its products. As present CEO of Starbucks, Howard Schultz puts it, “I want to maintain a fanatical control over my locations.”  Starbucks not only introduced prolific products but also leveraged outstanding locations. This became such a big deal that there was even a name created in real estate titled the Frappuccino Effect.

The Frappuccino Effect is when Starbucks opens a new location, the value of the nearby homes increases. According to the ex-CEO of Zillow, Spencer Rascoff, “in the time a normal home has appreciated in value by 65%, one near a Starbucks location will appreciate by 96%.” Starbucks has some sort of precognition about knowing which neighborhoods will be best for their locations.

Starting with one Seattle-based coffee shop in 1970, they now boast as the largest coffee chain in the world with 32,660 shops to date. 

But, it was not at all an easy journey for Starbucks. During the recession of 2008, Starbucks closed almost one-thousand stores. This was partially credited to the rescission, but that was not all. Starbucks began to face increasing amounts of competition, the most being from McDonald’s. As more competition arose, Starbucks faced copious dissatisfaction from the customers.

Howard Schultz, a Starbucks board member at the time, composed a memo stating his honest feelings about the company. Schultz discussed how Starbucks’ quality had become subpar, and how they were focusing solely on efficiency and speed rather than making sure every customer was pleased with their order. In turn, Starbucks renamed Schultz as the CEO; as Starbucks was in the company’s worst position in decades.


Not only did Schultz save the company, but enlarged it as well. Schultz did this by closing every Starbucks location for a day to retrain baristas to focus on the quality of the products, and the satisfaction of the customers. Schultz planned meetings with executives to explain the new Starbucks vision. In total, Schultz invested millions of dollars into the rehabilitation of the company.

Among the numerous other changes, one was to incorporate technology into Starbucks’ business model. Present-day, this is seen as the Starbucks app. The app presents the power to pre-order drinks, save customizable favorites, and of course skip the line. Now here’s the catch. While customers have the option to use credit or debit cards, customers are directed to the Starbucks “reload” system. Here, users can add money to their accounts and then either scan to pay, or directly use money from their Starbucks Card. Paying with the reload system gives double the Starbucks Stars allowing you to earn free drinks. You may be thinking that this seems like any normal app rewards system.  But, Starbucks has the largest number of assets in their app than any other restaurant rewards app, by a huge margin. 


Now, why do people keep reloading money into their accounts? It is because they are certain they will spend the money at some point, the large size of the business, and how Starbucks has demonstrated their top-notch customer support for years. All of this makes people feel comfortable keeping money in the Starbucks App. Almost half of all Starbucks customers in the U.S and Canada pay with the Starbucks Card on the app.  Starbucks had over 1.5 billion dollars collectively from the reloaders at the end of 2019. This is an enormous amount given that 85 percent of all US banks hold below 1 billion dollars in assets!

Here’s where it gets interesting. Technically speaking, Starbucks customers unknowingly allow Starbucks to use a “1.5 billion dollar loan” at zero percent interest! Sure, customers will eventually spend this money. In the meantime, Starbucks can utilize these funds to invest in the markets, reinvest in the business, or even start loaning that money to others! Not to forget about “breakage”; which is that 10 percent of the money is lost, forgotten, or simply never used!

This is frightening to other banks because legally speaking Starbucks is still not a bank. This allows them to bypass many financial regulations and use their assets for their choosings. Starbucks is not classified as a bank because customers cannot withdraw money from their accounts; it has to be used for the purchase of Starbucks goods. Because of this, Starbucks will never need to worry about mass withdrawals like other banks. Starbucks could grow this newfound banking system and even make their own Starbucks currency!

Starbucks can execute this work of genius because of a simple business model. Customer loyalty and satisfaction before anything. Starbucks has increased the barrier of entry as well as their market share making them rule the coffee world. Even as much as they are made fun of, Starbucks has an amazing business model and will continue to expand. Hopefully, the next time you reload into your Starbucks account, you will know how Starbank is using that money to their advantage. Or maybe, just spend that money on Starbucks’ stock (NASDAQ: SBUX)!



Works Cited




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Kabir Sankaran Rajendra

Writer - Mezo Inc.