How Starbucks is also a Bank?

Aaditya Pareek
E-Cell VIT
Published in
6 min readFeb 13, 2021


Some of you might have heard that the fast-food giant, McDonald's is in the real estate business, also that Harvard and Stanford are Hedge Funds with Universities. If you are reading about this for the first time you might be a bit confused. And believe me, I was too, to increase that dilemma, Starbucks, the popular coffee chain is becoming more like a Bank. Yes, you read it right, a Bank, where you keep your money in your account. Read the complete article to understand how exactly Starbucks is like a Bank. But to be clear, Starbucks has never explicitly said about any plans to become a bank.

The Story of Starbucks

Starbucks was started by the trio, Jerry Baldwin, Zev Siegl, and Gordon Bowker with Alfred Peet as their mentor. This was 1971 in Seattle and Starbucks mainly sold coffee beans. Then enters Howard Schultz who liked Starbucks and lobbied the founders to hire him as Director of Sales and Marketing. Then on a visit to Milan, Italy Howard Schultz decided to make Starbucks a coffee shop rather than a coffee beans store but the founders were not excited about the idea. In the year 1985–86 Howard and his investors purchased Starbucks and thus began the Starbucks we know today.

Howard Schultz. Getty Images

Within five years Starbucks had grown to around 140 locations and filed paperwork to go public in 1992. The infusion of cash allowed Howard Schultz to accelerate his already rapid expansion plan and within just two years of going public, the company’s store count had already tripled. By 1996 Starbucks had opened its 1000th store and debuted its first international location in Japan. Three years later Starbucks had doubled yet again with a total store count of nearly 2,500. But with all this growth the brand experience and consistency of coffee around the stores were well maintained.

In 2000, Howard Schultz transitioned to Chairman, and Orin Smith became the CEO. At the time company had around 3000 stores and under new management, Starbucks charted a new course towards even faster expansion. From 2000 to 2007 Starbucks grew more than four times and over the course of those 7 years, Starbucks opened around 1,500 new stores a year.

On a side note, Starbucks grew so much that a phenomenon called the Frappuccino Effect was observed. It says that the price of real estate increases significantly when a Starbucks was nearby. In the graph below you can see how this effect works. To read more visit here.


All this quick growth did not happen without its problems. Starbucks was cannibalizing its market share with oversaturation but the more serious problem of all was that management had been cutting corners for years by prioritizing profits over product quality and customer experience sacrificing the values that Howard Schultz had made an integral part of Starbucks. It seemed that Starbucks’ Green Mermaid(or Siren) had lost her soul. The 2008 Stock Market Crash had an adverse effect on the stock price of Starbucks. So in 2008, Howard Schultz returned as the CEO of Starbucks. He started restoring the Green Mermaid(or Siren)to its founding principles of product quality and customer experience. In 2016, Howard Schultz resigned as CEO after bringing the company to the previous glory.

Starbucks Today and its Technology

With amazing foresight, Starbucks also hired its first chief technology officer and launched the Starbucks loyalty card. The new focus on digital eventually paved the way for Starbucks to release its own app which is now responsible for a remarkable 30% of the company’s total sales.

Today such loyalty apps have revolutionized the food and restaurant industry. These loyalty apps allow users to easily accumulate rewards points and get a free drink, meal, or discount. If you are unaware of the way it works now, in 2021, is that instead of paying with cash or credit card, you can also add money to your Starbucks account. Then, you can pay with the app on your phone, giving you twice the number of “stars”, which let you redeem free drinks. While this may not sound all that genius, Starbucks is one of the most popular restaurant rewards apps in the industry.

Some features of the app that has made Starbucks a Fintech company. Image Source: Starbucks

Because of Starbucks’ size and customer loyalty, customers are not afraid to keep some of their money in their Starbucks account, as they know they’ll use it someday or other. 41% of U.S. and Canadian users pay with their Starbucks card. At the end of 2019, users held a collective $1.5 billion in balances. 1.5 billion dollars might not sound like a huge amount, but it’s significant when you consider that more than 3,900 banks across the U.S. have less than $1 billion in total assets, according to the FDIC.

According to Wall Street Journal data featured in Market Watch, Starbucks ’ customers in America have around $1.2 billion in cards and app. That’s higher than the deposits held by Customers Bank ($780m) and the Green Dot Corporation ($560m). Starbucks still has a long way to go to catch Paypal which boasts a whopping 13 billion dollars on its customer accounts across the world.

Image Source: Statista

Starbucks and Banks: Similar but different

Customers will obviously one-day exchange their money for coffee, but in the meantime, they unknowingly provide Starbucks with a 1.5 billion dollar loan, at 0% interest. Starbucks may use this money to invest in the market, earning profits for free, or spend on it expanding. Actually, it’s even better than it looks. About 10% of this money will be forgotten or lost therefore never be used — known in the industry as breakage. In the FY 2019, 2018, and 2017, Starbucks, according to its annual report, found the breakage income of $125 million, $155.9 million, and $104.6 million, respectively.

But the thing is Starbucks is not a bank legally. So with only a few exceptions, Starbucks' balance cannot be withdrawn for cash like a real bank, only coffee, allowing it to bypass financial regulation and use deposited money however it likes. You can understand it easily by the diagram below.

How Banks and Starbucks are similar but different?

In a general Bank, the people who deposit their money can withdraw their money whenever they want, so the Banks need to keep some amount of cash to give money when customers withdraw money. This is called Fractional Reserve Banking. To read more on the topic you can read this article, also written by me.

But Starbucks doesn't have to keep a certain amount of cash ready in case of mass withdrawals. If Starbucks wanted to, it has all the elements to build a fully-fledged currency or partner with other brands to create a widely-available mobile payment system.

Customers already use Starbucks gift cards as the next best thing to money. Starbucks gift card is somewhat liquid not because it can be converted to Coffee, but because you can reasonably be sure that anyone will have some use for it, making it an almost universal intermediary.

All this is giving chills to regular legal banks.

The CEO of South Korea’s third-largest financial group stated that Starbucks is an unregulated bank, not a mere coffee company. We cannot be sure what Starbucks will do next, or what its goals are but industry experts believe Starbucks could get involved in asset management through its prepaid cards, as well as the currency exchange, loan, and insurance sectors. Another Bank official was quoted saying that Starbucks is a fintech firm.

In conclusion, the idea of a huge corporation entering the financial services industry isn’t new. But if Starbucks were to do something like this, the banking world will be something else in the future. Now we can open bank accounts on the internet, so why not the same while getting your coffee at Starbucks?



Aaditya Pareek
E-Cell VIT

Startups || Design || Tech