I got a Starbucks gift card in Canada and one day traveled to the US and thought I'd try my luck with my gift card there. It worked! Turns out Starbucks is also a bit of a currency exchange as well.
🎯 Key takeaways & points for quick navigation: - 01:21 🌟 Starbucks operates a clever investment scheme through its My Starbucks Rewards system, where customers earn digital currency called Stars for their purchases. Starbucks uses customer funds in the reward system to invest in short-term, low-risk ventures, earning interest on the money while customers wait to make their next purchase. - 02:36 💰 With 29 million Starbucks reward members worldwide, Starbucks receives a significant amount of funds through its loyalty program, estimated to be upwards of $10 billion per year. If Starbucks were a traditional bank, it would rank in the top two percent of U.S. banks by deposit size. - 03:29 🤔 Starbucks' banking operations are skillfully obscured behind a curtain of customer service and convenience. Customers may not be aware that by leaving their money in their Starbucks rewards account, they are essentially providing the company with a free loan to finance its operations. - 04:14 ⚖ While Starbucks' model offers convenience and free items to customers, consumer watchdogs raise concerns about increased spending and the potential moral ambiguity of customers providing free loans to the company. - 04:45 📈 Other companies, including Apple, Walmart, Amazon, Target, and Costco, are following a similar trend of mixing primary goods and services with financial services to leverage their consumer base and brand identity. - 06:09 🌍 Governments and regulatory bodies around the world, including the United States, the European Union, the United Kingdom, and Australia, are starting to notice and propose new rules and licensing requirements for companies offering financial services outside the traditional banking sector. - 06:54 🏦 While Starbucks currently operates without regulations in its quasi-banking operations, increased scrutiny from authorities may lead to changes in transparency and laws regarding the use of consumer funds. The ethical implications and customer satisfaction remain subjects of debate. Generated with HARPA AI 🧬
It is coffee. I work at starbucks as a barista. The cold, refrigerated, glass bottles are probably less so, but we use coffee beans in any made-to-order drinks. We even grind the drip coffee ourselves. The espresso is machine-ground. Edit: phrasing
This has been the case for quite some time, even in India. I remember when wallets allowed you to load up money to spend. Everyone from Uber to Amazon has provided services of this kind. Paytm capitalized on this quite a bit before UPI came along. AFAIK in India we do have certain rules and laws that are applied on the companies who run these wallet like services. Even from a customer end, certain banking like requirements like KYC are mandatory for all customers. While Indians still prefer banks due to higher interest rates (2 - 6%), these wallet like services have been used quite a bit.
Any kind of online wallet in India is considered as a bank by RBI. and they have to operate under those laws. That's why you can't load money in iTunes wallet in India. You have to buy stuff straight with your credit card. As a customer this becomes frustrating because it's a bit harder to purchase stuff in India.
Any kind of online wallet in India is considered as a bank by RBI. and they have to operate under those laws. That's why you can't load money in iTunes wallet in India. You have to buy stuff straight with your credit card. As a customer this becomes frustrating because it's a bit harder to purchase stuff in India.
@@shantanukulkarni007they are termed as banks but doesn't function as a bank when it comes to customer service or customer interaction. They are just an app with no physical place for customers to go to when things go wrong. It's like they are banks only on paper. That's why a lot of frauds happen on these apps and people get duped very easily but these cases are not very often solved and people specially old get their life's earnings looted.
should also have mentioned this saves them on credit card non-percentage-based per-transaction fees (which are also higher for online transactions, a key savings for them when they introduced starbucks mobile ordering) - now they only pay these base fees once when you reload your card.
It's a significant cost, around 2.5% of the transaction. In the UK the retailer can't, by law, charge any less for using cash or card. Imagine someone spending $10 a day, six days a week - take 2.5% of $10 -> 25c now multiply that by 52x6 and you get $78 per customer per year - say 10M customers spend that $60 a week and you've suddenly got $78M and as this video notes, the investment to roll out the system comes from the customers loading up the cards... I don't see anything wrong with it, you don't have to use it. The card seems to automatically expire when £9000 is spent on it and there is a daily £2000 limit. I have a few and they are provided free by companies I work with as a perk, it's very useful when travelling as there's always a Starbucks where there are thirsty people 🙃
@@davidhunt240you are looking at the wrong fee. For a fee of 2.5% on 10 coffies bought individually or for the amount for those same 10 coffies deposited in one transaction it still exactly 2.5% (unless affected by rounding). The issue is the per transaction fee. Even if they pay just 0.05 dollar per transaction, the fee is 10 time higher for the 10 individual coffie. For a business where many clients buy for under 5$ at a time this can be significant.
@@davidhunt240 they still (likely) pay a percentage-based fee when you load your card up... but the fixed per-transaction fee of $0.10-0.20 (generalized) only gets paid once, instead of 5x, 10x, 20x (depending on avg transaction price and reload amount)
I imagine all the gift cards can work the same way. Target, Walmart, etc. These store get the cash right away to do what ever they wish until some of the cards are redeemed. Some get lost, forgotten or expire depending on their 'Terms of Service'.
Plus with gift cards the effective value of the card decreases over time with inflation, so the company is essentially earning interest at the rate of inflation.
So interesting you made this, I recently started using the Starbucks app and got the ick from the needless step of preloading whole dollar amounts to a digital card/currency, instead of just paying my tab in the app from my bank card, directly. Now I know why. And those whole dollar amounts make it almost impossible to completely delete the digital currency from the app. This is as bad as when they tried rounding people's change up/down to get rid of pennies 😂
Some companies that do this allow you to scan your rewards card to drain it then pay with another method at the register, starbucks is not one of these companies.
@@GoldenAura32that’s not true. You can ask the cashier to charge you the amount left on your sbux card and then the rest cash or whatever. I used to work there, the cashier who told you no was either lazy or stupid
I tried the Starbucks loyalty card when it first came out, and was shocked I had to load it up first before I can use it. Was not happy with that at all, I wanted to earn rewards every time I come in and buy a coffee. Since I don't normally go to Starbuck I felt like this was a rip off. I've got loyalty card for Caffe nero and Costa Coffee and I do not need to preload that card, I just scan the QR code, pay and get my stamp. And thats how it should be done.
Tell u what.. start your own company and then see which method you’d choose to go with.. the one that’s giving u perpetual free profits or the one where u don’t
I'd consider this as vertical integration, just like how Starbucks can have their own warehouses & eventually own coffee bean farms (upstream), they can also vertically integrate downstream to the financial institutions and of course, being subtle about it.
They're definitely allowed to do so, but just like they would still need to abide by the "farm laws" (whatever they are) for their coffee bean farms, they should still be treated as a bank.
You are very clever. However, I suggest you Study Sears Roebuck. The poster child of vertical integration. They are no longer in existence ( what is left is a shadow of the colossus it once was). What killed them? Vertical integration. They had no one to squeeze for better terms. They owned everything they sold.
Thank you for spotlighting Starbucks' business practices in this episode! I was aware of their labor violations, but not of their Starbucks rewards investments.
it's not a bank. As long as their investment is reported and accounted for in their tax filing, it's not a banking institution. I would say if their reward program which is tied to their GC program is an investment vehicle, then your free drinks and extra stars earned during promotional period would be considered interest payment. Under such circumstances, you will need to get a 1099-INT from Starbucks each year for your tax filing. Remember it is up to the recipient to verify their own # at end of the day. You would need to properly assess how many free drinks and stars you received from Starbucks each year. GL
I think it's totally fine, it's the reward program that provide incentive to customers with great service. One shouldn't be punished for their reward program just because they have millions of customers that want to be in the program. Any business would & should do the same, economically, to allocating funds for the great benefit of all business, not just Starbucks. Those that are questioning simply because they don't have a stake in that particular company. It's mostly jealousy and envy, not for moral justice or virtue. And anyone is crying about it, deep down you know which categories of people you fall under. Yuck! Quit pretending.
Thank you. I pretty much assumed Starbucks and other prepaid cards used unspent balances to earn money. But beware of tying a debit/credit card to a prepaid card. A few years ago McDonalds Canada had an issue when hackers got access to their rewards card and from what I read at the time McDonalds Canada's attitude to customer's complaints was " SUCKS TO BE YOU! take it up with your bank" some customers lost thousands
Don't ever do a debit card. All of the customers that "lost thousands" didn't lose anything if it was a credit card because that could be reported as an unauthorized charge and wouldn't have resulted in any customers losing money.
When you say 'tying a debit card to a prepaid card', what does that mean? Does that mean saving your card info on the app to easily load funds to the (prepaid card) account?
Except it's not a bank. When you cancel a flight, these funds are often converted into credit. You can't withdraw Starbucks balance as cash in the store, nor can you earn interest. So I guess the question is are those free drink considered taxable if store credits are considered banking? what if you buy Starbucks GC on 10% discount, are those 10% saving considered interest payout as well? I guess every citizen needs a 1099 from starbucks during their tax filing. lol.
Thank you for this video. How about one on insurance companies? I had a friend who was an agent. Company policy was to deny every initial claim. Larger claims, no matter how legitimate, would be denied multiple times. They calculate each claim as a loss & invest customer premiums for profit.
I mean the one thing that should be covered is the expected risk is sorta normal. With a checking account. You can withdraw it and risk bank runs if everyone withdraws it. For starbucks there is no expectation of withdraw. The worst risk is that they lose all the money, go bankrupt somehow, and shut down for some reason. But that is unlikely, but in the normal expectations. Banking regulations likely aren't really necessary.
How else are idiot politicians to win votes? They need these scapegoats to drum up fear. Don't know exactly what moral ambiguities people found in this strategy. It's not like people are forced to keep their money in it and I'm pretty sure nobody's storing their life savings in fucking Starbucks free coffee programs.
Very similar to the frequent flyer points business. I saw a video somewhere about how massive and competitive that is. I think there was a bankrupt airline whose point system was still worth a small fortune.
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it's the same thing as buying gift cards with the difference that you buy it for yourself and get additional benefits when paying with it. I don't see why customers should care what happens to their money when they purchase such a gift card as long as they can redeem it anytime they want.
Yes... I mean whether the company takes the revenue and invests it in its own growth or in paying salary etc its a business decision for future revenue. Idk.
When you buy a gift card it can't expire. So the company can't really do much with that money as far as investments as it sits on their balance sheet as a liability (money the company owes) This Starbucks program is turning your money into digital stars which are not the same as a gift card. I can't say for certain, but I imagine these stars could expire and the money to back them is not sitting on a balance sheet as a liability.
This is what I liked on this channel, the person speaks in just a right speed and does not make lots of unnecessary jokes unlike the Wendover guy. I hope they change their style.
Poker Stars did something like this back in the day, but when they had liquidity issues and a lot of people tried to withdraw (almost like a poker bank run), it all collapsed. I don't think this will happen to Starbucks though. Unless someone held them to ransom... like... their employees who are NOT happy LOL
I think Nordstrom has had a VISA card for at least 15 years ago where you could earn points and priority to shop sales if you have a card. They do not have cash deposits as Starbucks has, but the ability to pre-purchase items during the Anniversary Sale before it even starts does certainly encourage spending, putting it on your card, and of course potentially paying interest and fees on the card, which I presume Nordstrom gets a cut off as part of a partnership with a bank. GoDaddy, the domain name registrar, e-commerce and web hosting company have now started offering merchant services to compete with the likes of Square and PayPal. A clever idea, as they can bundle it with their hosting. And of course, airlines long ago have been offering miles with cards, sort of side hustle that is vital to companies whose apparent core business is shaky, based on the repeated hand outs they require from the government. Great video! Congrats on the ABC deal!
this is why i've never trusted any corporate cards or credit cards no matter how much "incentives" and "perks" or "points" they try to give out. the less cards i have the simpler my life is.
Corporate cards are for your data. Prepaid cards are for interest free loans, yes. But so what? Would you earn more from the intests than you get in rewards?
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During Covid a lot of restaurant chains asked customers to purchase gift cards. I'm assuming it was the same thing. So it's not just Starbucks that doing this.
A huge supermarket chain in the Netherlands is doing the same. The Albert Heijn (part of the Ahold Delhaize group) uses 'koopzegels' (purchase stamps) which you can buy for 10 cents after every dollar spent. The 10 cents goes to your wallet which is accesable through an app. You even get some interest on it and can withdraw it any time for cash or on the debit card. This video makes me wonder how much money they make on this principle.
But it's not being invested. Dogogo said that it was earning 0.05% interest which is far less than inflation or typical interest rates and is just a side effect of leaving billions of dollars somewhere safer than a bank account
@@Septimus_ii one is greater than zero. when it isn't your money that's earning interest, you'll literally take anything. it's a (legal) scam to dupe the stupid.
Starbucks is just exchanging cash for stars. Unfortunately those stars aren’t as liquid (no pun intended) outside of the Starbucks ecosystem. I think this is OK as long as you, the customer, is aware and accepting of that.
This is not ok at all as Star is not playing by the same financial rules and regulations as the other financial institutions are. Lots of cards are lost and never redeemed resulting in a windfall of free money. No interest is paid on the funds held in the cards. The freebees have expiry times so many are not redeemed. Which brings to mind Walmart asking for charity donations at the cash register. They don’t provide tax slips to claim on income tax filing. Walmart collects all this money for charities, receives all the credit and goodwill, plus receives tax credits to reduce their taxable income. They financially score off the backs of the donators. Unbelievable!
I imagine that the terms of service state that after putting money in, it's Starbuck's. In which case, what they do with it after is up to them. We wouldn't question Starbucks investing the profit on the coffee you purchased so if the reward card is treated the same as buying a gift card, it's already their money. However, if regulation steps in to say that customers *should* be allowed to pull their money out, than Starbucks has truly become a bank and probably should be regulated as one.
I'm pretty sure this is exactly what "bla bla car does". Although they do not have a system to get your money via credits, but they do retain your money several days until you get paid by passengers (or if you are a passenger, many days until you get your money back in a refund).
The main thing that concerns me with this sort of scheme is risk. The customer thinks they're putting some coffee money away in a safe place for convenience. In fact the bank is investing it. Sure it's a safe, low rate of return, but sometimes safe investments go down too in a financial downturn. And over time, Starbucks may start to get more risky as the profit potential calls to them. Eventually we may see a day where people want their SB money to buy coffee etc and SB says "it's gone!". If that happens when the company also is facing a downturn of its own, that gets ugly.
but its not like they ever tell you , you can get your points back as cash.... what they really owe you is coffee..... so i dont really see the risk here, the only risk really is that starbucks goes bankrupt and ceases to exist, in which case the points loose all value. I dont see any other risk in this at all, if Starbucks takes my money and gambles it all away.... idc, im just owed a coffee
In the US at least most states (probably all) have unclaimed funds statutes. What than means is that is a customer places a deposit for the potential future purchase of product but fails to use it, the company that receives the deposit has an obligation to return the funds to that customer. The company must make a reasonable effort to return the funds and if they fail to do so after a set period of time the unclaimed funds must be sent to the state. The company may not retain these funds. These laws are referred to as escheat statutes. Every company operating these types of programs probably has a team of accountants that deal with these issues either internally or externally.
ONly applies to accounts with an identifiable owner. Gift cards are essentially bearer accounts, meaning you don['t have to identify yourself as the owner. All you have to do is have a card and present it at the payment terminal.
This sounds like what the NSW gov did with the opal cards when first released. It was a min $50 to put on a card and you had no alternative at the time. So for people like me who use the train 3-4 times a year, I had $40+ sitting on it which the gov made interest on
Imagine how much money make those companies that offer prepaid cards, how many of us left some cents in our accounts and didn't spend them because there was nothing we could purchase with them? Those cents become a huge sum that can be invested just like starbucks does and make millions.
With the transfer of property funds are held by attorneys for a couple months, they often place it into an interest yielding account while deeds are documented, benefits everybody. Now banks on the other hand, one thing needs to change, fractional reserve should be increased to +50% LTV or something absurd like that, perhaps they'll stop burning out every 10 years.
Fun fact about UK supermarkets (probably elsewhere too), they make a lot of money from their credit cards. That's why you always see them advertised everywhere. They are very cash rich at any one time and they make a lot of money by lending out that money. In fact this is why their suppliers are often pissed off because these big chains take so long to pay them because they want to hold onto that money for as long as possible.
In store credit cards are at least beholden to the rules and regulations surrounding credit cards, this program at Starbucks is likely free to change the terms and conditions at will. It's apples and oranges.
@@Skoozi Yea and people voluntarily give them the money. Suppliers who are waiting months for payment are not really signing up to their money being lent out but have no choice.
The issue is the lack of transparency for the customer. When you go to upload money onto your card/account, it doesn’t conspicuously state they’re going to take that money and use it to invest to make profit off of it.
@@raghu7174 one of them is a bank. The other is a franchise where you can get 4 days off sugar and caffeine in a single drink. That’s the difference. There needs to be transparency.
@@YaYousef5 Why does there need to be transparency? If there was risk of customers losing their money then I'd agree, but if the investments are risk free or otherwise 100% covered by Starbucks, then it doesn't affect customers at all.
when I worked engineering, we had a coffee vending machine on our floor... you know the kind, ID-card driven, punch the code of drink, out comes the cup. it worked by both slot card AND coins, so many of us would have spare coins on us at any time in case the card didn't work for whatever reason. it didn't take us much to see that *WHEN* the machine wouldn't have coins itself to return change, we'd be losing money if we put in coins ourselves to pay... so, we always put in the card, in addition to whatever coins we had laying around. when taking out the card, the leftover change would be charged TO the card automatically... no change expended BY the machine whatsoever. that exactly is what SB is doing here: keeping the change for future purchases. take out all the fancy terminology, the visuals and the promotions, and that's all there is: they up the prices to uneven values so that there would be an excess to every purchase, and they don't pay it back in change... they charge it back to the account, through credits. ....an account, that you're already paying for, to be a member and use the system.
Other than the issue of pre-loaded cards psychologically priming people to spend more + hoping you never spend it all, what's the difference between Starbucks taking & investing money from an app vs from a transaction?
Because the transaction is an exchange of money for goods and services where the customer gets their coffee and Starbucks gets a profit from providing that coffee. The app is transfer of money to potentially be used in the future, unless lost or forgotten, during which time Starbucks earns interest off it without providing any value upfront. So I take your $10 dollars and then some time later when I've grown it to $20 you come in and I give you a $10 coffee (which doesn't cost me anywhere near that price) They're double dipping, you're giving them money and they never have to pay it back, at worst they have to give you some overpriced beverages as compensation.
What you didn’t mention is if there is an approximate value of Starbucks Stars? This reward to the customer is where regulators could step in in the same way gambling machines have to give a fixed percentage long term??
@philthornton1382 well gift cards are exempt from bankruptcy, they need to ask for court permission for that. If that's the case, I support Starbucks investing our unused gift card money as long as it doesn't interrupt our use of it. I think it's a great idea for them, good for them.
@@StalkedByLosers With Starbucks program it's not a gift card, that's the whole issue. It's like buying in game currency on a mobile game, sure those could be used to buy things in game but the program can be shut down or modified at the will of the company because it's not protected by the same rules surrounding gift cards.
Yeah, a truly pretty ingenious scheme, as Starbucks is also, obviously, much more resistant to any form of a "bankrun" and doesn't offer a cash refund on giftcards. Thus, even if the company goes on the verge of bankruptcy and everyone grabs their forgotten gift cards and rushes to the stores to grab smth while it's still going - well, in this worst-case scenario, people will simply participate in merchandise/perishable produce liquidation (which is only helpful), and won't be able to ask for a single penny of actual cash. I'm surprised you didn't touch on the aspect that this "loan" from customers is not only interest-free, it's effectively "tax free." For each full $1 that Sbux receives from a customer (and turn into 0.05% profits), they will subsequently only have to give away ~97c worth of actual goods, as the rest will be sales taxes, taken out of the customer's balance, not the Sbux' pockets! Geez, that's a free license to print money, if you think about it.
Reminds me of a Wendover Productions video about how airlines are also doing something similar with their frequent flier rewards systems, to the point that the actual business is losing money and the rewards are the only profitable part. Though that one didn’t involve investment; I have to rewatch to figure out where the profit came from in that.
I would VERY much more trust my money with any coffee shop, than with any big bank I know of! When a small scale entrepreneur (incredibly) employed me as his salesman and during the interview asked me how I would sell the new specific physical product he wanted to introduce. I intuitively proposed to do it on a subscribtion basis. He laughed out loud, said that he appreciates my sense of humor and hired me. I did sell his product that way. He kept telling me that he likes my sense of humor. At the time I thought that it was a good sign having a boss saying that. When he later fired me, he repeated that he always appreciated my sense of humor. Only then did I understand the drawback of his attitude. Because... I never joke.
Thing was, that it was a kind of emergency item that COULD become very valuable if something went wrong. Everyday it had no value. The installation cost, so to speak, was a bit hefty. But putting a duration on that payment flow made the monthly cost enough negligable in any budget reprioritation for any customer to deliberate in any internal bureaucratic cost reduction process to actually end the subscription. So NOT A SINGLE SUBSCRIBTION was ever cancelled. The psychology of removing the safeguard we were providing, and then suddenly (unlikely, never happened to my knowledge, actually) that very item might've turned out to be very very needy, was always overwhelming for whomever in their organization might become the scapegoat for making that decision. "Operative risk management" I think it is called academically. I like how the Swiss classify risk management: 1 Vertragen = Just take it as it comes! 2 Vermindern = Try to manage it operationally (my stuff described here) 3 Versichern = Enter a deal with the Devil to take over the risk! 4 Vermeiden = Avoid it, don't touch it! My recommendation is either 1 or 4. Well, 2 is hopefully intuitive to us all in many ways, but don't take it so far as to *outsourcing* that one! It could become a ticking cost. And 3 is the worst because it cannot be anything but a ticking bomb. "When something goes wrong, someone else will take care of it!" Yeah, sure...
I think it’s fine as long as Starbucks customers don’t lose their money in the trading - I.e. Starbucks doesn’t take a loss in the trades and then suddenly the consumer lost what they loaded on the card
Well I'm sure Starbucks has terms in the fine print that allow them to cancel, change or modify the program at their discretion at any time without warning.
I knew something sketchy was going on when i tried to sign up years ago and they wouldnt allow a payment method other than deposited money. I didnt like the system holding my money so I never signed up.
I've had multiple Starbucks cards over the years. If ever I find a random one, I take it to Starbucks and get them to check if there's money on it. If yes, I buy a coffee, if no, I put the card away for another time. They need to be transparent about how the cards really work, otherwise they are getting more wealthy off other people's money and all without permission, which really rankles me. Thanks for the video. I love Starbucks but now I know what they are doing with their cards, I'll make sure I only use cash in their store.
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Here's a solution. If you're a Starbuck's addict (who isn't), either pay for each purchase individually or link a credit card to your Starbucks card and use that as the payment source. The latter option will still earn you "stars" while not giving Starbucks free money.
Don’t all big businesses & corporations do this to some degree? For example, These businesses are quick to take your hard earned cash with a swipe in literally seconds, yet when you need a refund or your money back it takes 2 - 3 business days (sometimes up to a week) to go back into your account/card.. I assumed in those days waiting for your money to return to you that these businesses were just using it to gain some interest before returning it to you (but on a huge scale & gaining millions of dollars everyday they get to borrow it from you.)
If you're a regular customer, let's say 50 bucks a month, I don't see the harm. Over a year, they make 30 cents out of the money you put in there, and that's if you don't use it. Let's be real, there's no way the rewards have a market value of less than 30 cents, so I feel it's a win win situation.
It’s just a highly clever accounting practice. More effective way to raise fund with a coffee shop is selling a gift card which has say 10-20 cups of coffee, then you’ve generated sales and by extension pure revenue, then those revenues can be invested to improve cash flow. What Starbucks is doing is sort of leveraging on deposits. High risk high reward.
I haven't been to a Starbucks since 2016. I don't know how it is in other countries or how it is now even here in Ireland, but back then they did not have organic coffee only the regular one which is drenched in pesticide and herbicide etc, coffee beans are always on the list of dirty dozen, and they didn't use filtered water only regular tap water which is full of chlorine, fluoride and other really dodgy chemicals. So they didn't even have coffee, it was more of a weird concoction of nasty chemicals which you can sip through a plastic lid. 🤢🤮🤮🤮 7 years have gone by and I'm not missing a thing. 🤷♂
I think the most valid challenge to the legality of this business practice would be from small traditional local coffee shop claiming (correctly) that monopoly abuse under the Sherman Act was happening ie unfair competition as a result of a monopoly benefit. Same argument applies to news journalism publishers attacking Apple Microsoft and Google's ability to promote THEIR new publishing services in the search engine, or the OS.
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I’m a Starbucks rewards member, since it’s inception. Here are my thoughts: There is absolutely nothing wrong with any corporation attempting to make a profit on money that is, essentially, alternative theirs. As long as the rewards program makes good on their free products, it’s totally fine. Why can’t Starbucks use the money it makes to subsidize the free products? If you want your money back, just ask at a Starbucks. In terms of this nonsense of trying to “protect the consumer”, it’s bull. If you aren’t allocating those funds for your Starbucks products, then don’t load up your card. Have some control over yourself.
This practice is largely unchanged since department stores began offering gift certificates about a hundred years ago. My first experience with the twist of adding rewards to gift certificates was McDonald's in the 1970s when you could buy booklets of discounted certificates that could be redeemed for face value. This particular installment of ColdFusion may have been better titled as "Water is Wet."
Every company that holds customer money in the short term use this method to earn some interest on the money they are holding. Starbucks is not the first company to do this. It started with insurance companies and banks, but a cafe franchise doing this is certainly never heard of. Even companies that take preorders or deposits, like Tesla, do the same thing. It has become a norm. It makes financial sense from a company's perspective. In fact, people should follow this in their personal lives as well. Do not give money to companies that will keep them for months or years and you get low to no interest in return, like a preorder or deposit. Invest that money somewhere in the short term.
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This is happening everywhere...both "free loan" and "endless payment" models. The latter is to do with paying for subscriptions everywhere. This includes software that you would have normally bought outright before, and even features in cars which now have to be paid by subscription, even if you've bought a car and it belongs to you (see BMW). There is a washing machine company in Germany that is now furnishing apartment buildings with machines that are activated via an app by the residents of said buildings. To use them the residents must first "top up" a credit account in the app with 20 Euros!! So instead of paying their loads of laundry as they go, they now have to pay 20 Euros worth of washes in advance! This way the company (Miele) gets a free loan of 20 euros from everyone in the building. And, unlike Starbucks, there is no incentive associated with the loan: washing a load is not cheaper. In fact, it's more expensive than usual, at 2 euros per load.
I will forever be indebted to you you've changed my whole life continue to preach about your name for the world to hear you've saved me from a huge financial debt with just little investment, thanks so much Mrs. Payton Brooks
I don't like any company doing stuff like this, but most similar companies do the same thing. Any company taking money up front in any form at all, will earn interest until the money ends up spent by you, or in your bank account. My own experience with agencies I deal with daily where a customer pays them, is that my commission takes longer and longer to appear in my hands. Several middle-men take a cut and keep hold of the funds for as long as they dare. I even increasingly see digital purchases refunded after a month or so, with an immediate sale again at the same price, which means they have more time before they have to actually part with funds. It's so unfair but nothing is done to stop it.
Seems fine. Doesn't need any regulation. That would be silly for such a scheme. What really is mind boggling is that so many people can stomach the crap that starbucks sells
I think Starbucks should have to get consent from the consumer to invest/use the money parked in the Rewards program the way they use it. I feel like it should be relatively simple for them to still make money even if the "can we use your money to invest?" was opt-in. All they'd have to do is tweak the Rewards system so that opting in would grant some extra benefit to the consumer, the way that (in the U.S. at least) using your debt/credit card in the app grants you a 1x of Rewards points, but using money deposited directly into the Starbucks app (the money they can then invest with) grants a 2x multiplier. They could figure something like that out to entice people to opt in. They'll never need to do this though long as what they're doing continues to be in the gray area and under the radar from governing bodies that would maybe want to crack down on it though. But if they did get pressure i feel like it'd be very easy to tweak to make it work and still be very profitable for them.
Mcdonalds has a pre-order app now (at least in Australia) rest assured they'll be doing this next. One of the largest financing companies was General Electric, which has little to do with electricity, although they got beat up a bit in 20008/09.
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. How do i get a loan from starbucks?
This isn't a "new" business idea. Companies have been doing it for years now. Even if some people do think it's shady, it's THEIR money once it leaves your bank. You've deposited it into a store on the understanding that it can only be used there. You're agreeing upfront that you promise to spend it there and only there. The company can do what they want with it. As long as they have the cash flow to re-order stock, it's up to them to invest however they see fit.
Nice report Dagogo, and nice track at the end there. It doesn't seem as bad as some of what the financial sector has given us here in the US. I definitely think they should be regulated. What they do with that money should be known at least by regulators.
I'm not sure if it's still the current model. But a decade ago, HERTZ car rentals used to charge customers for insurance and the "excess" fee for damages. But they never actually had any insurance on the vehicles. It was an in-house damage vs returns decision. IE. 1 in every 200 cars gets written off it's built into their model and cheaper than paying insurance on fleets. Etc... So you could call it fraud in one sense by selling something that never existed
It seems more and more that the meta business goal is to move from a traditional business model like products or services to any form of unregulated banking as soon as possible. You see this with car dealerships, airlines, and now coffee.
Many companies do the same thing in my opinion, not alone Starbucks. The gift card purchased means the co receives money before you actually spend. So the money is free money they invest some where . As long as customers are not cheated and they get the rewards I think it is ok.
As I understand, you cannot withdraw the funds once deposited in the Starbucks wallet. So that’s worse than banks and gives them a ‘guarantee’ that the money is theirs. Therefore, unlike banks they don’t need to keep a reserve in case people withdraw money nor face the risk of a bank run. People should be allowed to withdraw their money because they technically have not delivered the goods at the point of making deposits. I hope the regulators implement this and not just require them to get a license.
but this is just part of the arrangement, its not really a bank as we think of it, becouse no one is using starbucks points as a way of saving there money and retirement.... thats why banks have strict regulations. The only bad thing that can happen to you, is if Starbucks goes out of business , and your points are useless. But if this scheme helps them be even more profitable, i dont really see how this would increasing the risk of anything.
Also Starbucks always increase there prices during the end of the year when you get those next year planner. You didn't notice it if you are a casual drinker you would not notice but because you are attaining a goal for a planner or notebook/ tumbler you just take in the price and that price will be the price for the next year. Very devious but very creative. they tried to do a explainer and only got a backlash but now they no longer announce the hike they just slide it in every end of year.
I'm not sure what time frame the "0.05%" refers to, but if companies estimate how much of the funds from customers are truly "lost" (funds that will never be redeemed), they could move those funds to long-term, higher-yield products, possibly even just buying stocks (such as Starbucks stock!). Sorry, I'm not sure I'm helping.
I got a Starbucks gift card in Canada and one day traveled to the US and thought I'd try my luck with my gift card there. It worked! Turns out Starbucks is also a bit of a currency exchange as well.
How much currency did you get? The CAD converted to USD?
I was going to make this comment as well.
I was able to accomplish the same when traveling from the USA to Canada.
Interesting find isn't it?
can't that just be because you're buying starbucks funds and not actual money?
You mean...a bank?
I got my Starbucks card in the US and I use it in Mexico without problem too! Not sure about the exchange benefits
🎯 Key takeaways & points for quick navigation:
- 01:21 🌟 Starbucks operates a clever investment scheme through its My Starbucks Rewards system, where customers earn digital currency called Stars for their purchases. Starbucks uses customer funds in the reward system to invest in short-term, low-risk ventures, earning interest on the money while customers wait to make their next purchase.
- 02:36 💰 With 29 million Starbucks reward members worldwide, Starbucks receives a significant amount of funds through its loyalty program, estimated to be upwards of $10 billion per year. If Starbucks were a traditional bank, it would rank in the top two percent of U.S. banks by deposit size.
- 03:29 🤔 Starbucks' banking operations are skillfully obscured behind a curtain of customer service and convenience. Customers may not be aware that by leaving their money in their Starbucks rewards account, they are essentially providing the company with a free loan to finance its operations.
- 04:14 ⚖ While Starbucks' model offers convenience and free items to customers, consumer watchdogs raise concerns about increased spending and the potential moral ambiguity of customers providing free loans to the company.
- 04:45 📈 Other companies, including Apple, Walmart, Amazon, Target, and Costco, are following a similar trend of mixing primary goods and services with financial services to leverage their consumer base and brand identity.
- 06:09 🌍 Governments and regulatory bodies around the world, including the United States, the European Union, the United Kingdom, and Australia, are starting to notice and propose new rules and licensing requirements for companies offering financial services outside the traditional banking sector.
- 06:54 🏦 While Starbucks currently operates without regulations in its quasi-banking operations, increased scrutiny from authorities may lead to changes in transparency and laws regarding the use of consumer funds. The ethical implications and customer satisfaction remain subjects of debate.
Generated with HARPA AI 🧬
What's even more sneaky is the way they somehow managed to make people believe they're drinking actual coffee.
THEY ARE
Coffee snobs are cringe
Hang on ....
That swill is considered COFFEE ?!!?
It is coffee. I work at starbucks as a barista. The cold, refrigerated, glass bottles are probably less so, but we use coffee beans in any made-to-order drinks. We even grind the drip coffee ourselves. The espresso is machine-ground.
Edit: phrasing
@@4thzone697 almost as bad as wine snobs
This is what we call the "Flywheel" of the business. A series of small actions that compound the momentum of the product/service.
Another reason to support local coffee shops.
Especially the Dutch ones 👌🏻
Support Dez nutz
Lower taxes and fewer regulations help local coffee shops. Support libertarianism.
@@numblinkartgott'im
100%
This has been the case for quite some time, even in India. I remember when wallets allowed you to load up money to spend. Everyone from Uber to Amazon has provided services of this kind. Paytm capitalized on this quite a bit before UPI came along. AFAIK in India we do have certain rules and laws that are applied on the companies who run these wallet like services. Even from a customer end, certain banking like requirements like KYC are mandatory for all customers. While Indians still prefer banks due to higher interest rates (2 - 6%), these wallet like services have been used quite a bit.
Great service!
Any kind of online wallet in India is considered as a bank by RBI. and they have to operate under those laws. That's why you can't load money in iTunes wallet in India. You have to buy stuff straight with your credit card. As a customer this becomes frustrating because it's a bit harder to purchase stuff in India.
Any kind of online wallet in India is considered as a bank by RBI. and they have to operate under those laws. That's why you can't load money in iTunes wallet in India. You have to buy stuff straight with your credit card. As a customer this becomes frustrating because it's a bit harder to purchase stuff in India.
Similar to Vietnam, but in Vietnam any e-wallet with over ~200$ must be linked to a registered bank account.
@@shantanukulkarni007they are termed as banks but doesn't function as a bank when it comes to customer service or customer interaction. They are just an app with no physical place for customers to go to when things go wrong. It's like they are banks only on paper. That's why a lot of frauds happen on these apps and people get duped very easily but these cases are not very often solved and people specially old get their life's earnings looted.
should also have mentioned this saves them on credit card non-percentage-based per-transaction fees (which are also higher for online transactions, a key savings for them when they introduced starbucks mobile ordering) - now they only pay these base fees once when you reload your card.
nice, fuck credit cards
Not bad
It's a significant cost, around 2.5% of the transaction. In the UK the retailer can't, by law, charge any less for using cash or card. Imagine someone spending $10 a day, six days a week - take 2.5% of $10 -> 25c now multiply that by 52x6 and you get $78 per customer per year - say 10M customers spend that $60 a week and you've suddenly got $78M and as this video notes, the investment to roll out the system comes from the customers loading up the cards... I don't see anything wrong with it, you don't have to use it. The card seems to automatically expire when £9000 is spent on it and there is a daily £2000 limit. I have a few and they are provided free by companies I work with as a perk, it's very useful when travelling as there's always a Starbucks where there are thirsty people 🙃
@@davidhunt240you are looking at the wrong fee.
For a fee of 2.5% on 10 coffies bought individually or for the amount for those same 10 coffies deposited in one transaction it still exactly 2.5% (unless affected by rounding).
The issue is the per transaction fee. Even if they pay just 0.05 dollar per transaction, the fee is 10 time higher for the 10 individual coffie.
For a business where many clients buy for under 5$ at a time this can be significant.
@@davidhunt240 they still (likely) pay a percentage-based fee when you load your card up... but the fixed per-transaction fee of $0.10-0.20 (generalized) only gets paid once, instead of 5x, 10x, 20x (depending on avg transaction price and reload amount)
I tried starbucks once. Ended up paying 5 bucks for a cup of toilet water
I imagine all the gift cards can work the same way. Target, Walmart, etc. These store get the cash right away to do what ever they wish until some of the cards are redeemed. Some get lost, forgotten or expire depending on their 'Terms of Service'.
Plus with gift cards the effective value of the card decreases over time with inflation, so the company is essentially earning interest at the rate of inflation.
Gift cards dont expire
Americans love overspending. Anything that encourages that is going to work brilliantly.
@@deker0954 Bernays really messed this place up!
@@ZoneGlazed Some might. Depends on what the local laws allow, after all, it was common about a decade or two back
So interesting you made this, I recently started using the Starbucks app and got the ick from the needless step of preloading whole dollar amounts to a digital card/currency, instead of just paying my tab in the app from my bank card, directly. Now I know why. And those whole dollar amounts make it almost impossible to completely delete the digital currency from the app. This is as bad as when they tried rounding people's change up/down to get rid of pennies 😂
Can’t you just use your cents or whatever remaining and then pay the rest with credit/debit?
Some companies that do this allow you to scan your rewards card to drain it then pay with another method at the register, starbucks is not one of these companies.
@@GoldenAura32 wow thats crazy
@@owens375you can if you go into the store. I’ve done that to clear my Starbucks cards before
@@GoldenAura32that’s not true. You can ask the cashier to charge you the amount left on your sbux card and then the rest cash or whatever. I used to work there, the cashier who told you no was either lazy or stupid
I tried the Starbucks loyalty card when it first came out, and was shocked I had to load it up first before I can use it.
Was not happy with that at all, I wanted to earn rewards every time I come in and buy a coffee.
Since I don't normally go to Starbuck I felt like this was a rip off.
I've got loyalty card for Caffe nero and Costa Coffee and I do not need to preload that card, I just scan the QR code, pay and get my stamp.
And thats how it should be done.
Sure but the channel is misrepresenting what Starbucks is doing. It's just a gift card. He is starting conspiracies.
Tell u what.. start your own company and then see which method you’d choose to go with.. the one that’s giving u perpetual free profits or the one where u don’t
@@sabrinakingsley798 you don't have a clue. Star Rewards is not a gift card.
Star rewards is not a gift card, the gift card that you buy to join Star rewards, is.
That upset me too. Luckily they changed it.
I'd consider this as vertical integration, just like how Starbucks can have their own warehouses & eventually own coffee bean farms (upstream), they can also vertically integrate downstream to the financial institutions and of course, being subtle about it.
Interesting perspective! I like it
Exactly this. I was suprised he didn't mention this in the video. I was expecting the word "integration" to fall at any moment lol.
They're definitely allowed to do so, but just like they would still need to abide by the "farm laws" (whatever they are) for their coffee bean farms, they should still be treated as a bank.
You are very clever. However, I suggest you Study Sears Roebuck. The poster child of vertical integration. They are no longer in existence ( what is left is a shadow of the colossus it once was). What killed them? Vertical integration. They had no one to squeeze for better terms. They owned everything they sold.
@@siulanainad wow, that's an interesting input!
Thank you for spotlighting Starbucks' business practices in this episode! I was aware of their labor violations, but not of their Starbucks rewards investments.
What labor violations, hiring too many tatted liberals?
People should stop consuming their products
it's not a bank. As long as their investment is reported and accounted for in their tax filing, it's not a banking institution. I would say if their reward program which is tied to their GC program is an investment vehicle, then your free drinks and extra stars earned during promotional period would be considered interest payment. Under such circumstances, you will need to get a 1099-INT from Starbucks each year for your tax filing. Remember it is up to the recipient to verify their own # at end of the day. You would need to properly assess how many free drinks and stars you received from Starbucks each year. GL
I think it's totally fine, it's the reward program that provide incentive to customers with great service. One shouldn't be punished for their reward program just because they have millions of customers that want to be in the program. Any business would & should do the same, economically, to allocating funds for the great benefit of all business, not just Starbucks. Those that are questioning simply because they don't have a stake in that particular company. It's mostly jealousy and envy, not for moral justice or virtue. And anyone is crying about it, deep down you know which categories of people you fall under. Yuck! Quit pretending.
They're not the only company doing this...Subway, any one of them with a preloaded card.
Thank you. I pretty much assumed Starbucks and other prepaid cards used unspent balances to earn money. But beware of tying a debit/credit card to a prepaid card. A few years ago McDonalds Canada had an issue when hackers got access to their rewards card and from what I read at the time McDonalds Canada's attitude to customer's complaints was " SUCKS TO BE YOU! take it up with your bank" some customers lost thousands
Good point. Well said. 👍
Don't ever do a debit card. All of the customers that "lost thousands" didn't lose anything if it was a credit card because that could be reported as an unauthorized charge and wouldn't have resulted in any customers losing money.
Tricky.
When you say 'tying a debit card to a prepaid card', what does that mean? Does that mean saving your card info on the app to easily load funds to the (prepaid card) account?
If they’re behaving like banks they should regulated like banks. Plain and simple
Why?
How well do you think regulatory bodies of Banks are doing there * THEIR job? *edit
Fairly mindless remarks.
Except it's not a bank. When you cancel a flight, these funds are often converted into credit. You can't withdraw Starbucks balance as cash in the store, nor can you earn interest. So I guess the question is are those free drink considered taxable if store credits are considered banking? what if you buy Starbucks GC on 10% discount, are those 10% saving considered interest payout as well? I guess every citizen needs a 1099 from starbucks during their tax filing. lol.
thing is they DON'T AT ALL
they don't create money or get it from the FED and give out credits, they just have customer money
Thank you for this video. How about one on insurance companies?
I had a friend who was an agent. Company policy was to deny every initial claim. Larger claims, no matter how legitimate, would be denied multiple times. They calculate each claim as a loss & invest customer premiums for profit.
I mean the one thing that should be covered is the expected risk is sorta normal. With a checking account. You can withdraw it and risk bank runs if everyone withdraws it. For starbucks there is no expectation of withdraw. The worst risk is that they lose all the money, go bankrupt somehow, and shut down for some reason. But that is unlikely, but in the normal expectations. Banking regulations likely aren't really necessary.
second this. its a clever way to make money
Let them make money. Although in a perfect world, that should reduce the prices.
How else are idiot politicians to win votes? They need these scapegoats to drum up fear. Don't know exactly what moral ambiguities people found in this strategy. It's not like people are forced to keep their money in it and I'm pretty sure nobody's storing their life savings in fucking Starbucks free coffee programs.
Starbucks shutdown in Australia
@@marius165 well, you some percentage off their products
really love your videos appreciate all the work that goes into finding and explaining these types of topics
Very similar to the frequent flyer points business. I saw a video somewhere about how massive and competitive that is. I think there was a bankrupt airline whose point system was still worth a small fortune.
Probably Wendover Productions “How Airlines Quietly Became Banks” for other people looking.
I believe it was American Airlines whose reward points were worth more then the actual company because the par value for 1 mile was 1 cent.
Hey congrats on the abc collaboration! You have come a long way since the android mod videos! Your videos are always very interesting to watch , keep up the good work!
it's the same thing as buying gift cards with the difference that you buy it for yourself and get additional benefits when paying with it. I don't see why customers should care what happens to their money when they purchase such a gift card as long as they can redeem it anytime they want.
Yes... I mean whether the company takes the revenue and invests it in its own growth or in paying salary etc its a business decision for future revenue. Idk.
When you buy a gift card it can't expire. So the company can't really do much with that money as far as investments as it sits on their balance sheet as a liability (money the company owes) This Starbucks program is turning your money into digital stars which are not the same as a gift card. I can't say for certain, but I imagine these stars could expire and the money to back them is not sitting on a balance sheet as a liability.
This is what I liked on this channel, the person speaks in just a right speed and does not make lots of unnecessary jokes unlike the Wendover guy. I hope they change their style.
Poker Stars did something like this back in the day, but when they had liquidity issues and a lot of people tried to withdraw (almost like a poker bank run), it all collapsed.
I don't think this will happen to Starbucks though. Unless someone held them to ransom... like... their employees who are NOT happy LOL
I think Nordstrom has had a VISA card for at least 15 years ago where you could earn points and priority to shop sales if you have a card. They do not have cash deposits as Starbucks has, but the ability to pre-purchase items during the Anniversary Sale before it even starts does certainly encourage spending, putting it on your card, and of course potentially paying interest and fees on the card, which I presume Nordstrom gets a cut off as part of a partnership with a bank. GoDaddy, the domain name registrar, e-commerce and web hosting company have now started offering merchant services to compete with the likes of Square and PayPal. A clever idea, as they can bundle it with their hosting. And of course, airlines long ago have been offering miles with cards, sort of side hustle that is vital to companies whose apparent core business is shaky, based on the repeated hand outs they require from the government. Great video! Congrats on the ABC deal!
this is why i've never trusted any corporate cards or credit cards no matter how much "incentives" and "perks" or "points" they try to give out. the less cards i have the simpler my life is.
The Apple Card is awesome
But occasional free Domino's pizza?
Corporate cards are for your data. Prepaid cards are for interest free loans, yes. But so what? Would you earn more from the intests than you get in rewards?
‼this ‼
What does it matter to us whether they invest the money?
Thanks!
I have never had, or been inside a Starbucks, nor will I ever.
At the very least, I now grasp the concept of leverage.
Creating
Most people simply enter the foreign exchange market without comprehending matters like this.
The first stage in building money is determining your goals and risk tolerance, which you may do on your own or with the assistance of a financial counselor who works with a verified Finance agency.
And also you can learn the facts about saving and investing and create a clear plan, you should be able to acquire financial security over time and enjoy the benefits of income management
Congrats to your content making it to other platforms, its a credit to your editing style and presentation. Thanks for all your efforts always!
During Covid a lot of restaurant chains asked customers to purchase gift cards. I'm assuming it was the same thing. So it's not just Starbucks that doing this.
No surprise. McDonald's is secretly a real estate company
True. General Motors is a health care company, Harvard is a private equity company.
A huge supermarket chain in the Netherlands is doing the same. The Albert Heijn (part of the Ahold Delhaize group) uses 'koopzegels' (purchase stamps) which you can buy for 10 cents after every dollar spent. The 10 cents goes to your wallet which is accesable through an app. You even get some interest on it and can withdraw it any time for cash or on the debit card. This video makes me wonder how much money they make on this principle.
if they offered a return and made it clear that the rewards card was being invested, i could see alot of people being completely okay with it.
They would still need to register with the same bodies as a bank would and follow same regulations, which they havent done so
@@craftyrouze yes, they should also register as any other bank.
But it's not being invested. Dogogo said that it was earning 0.05% interest which is far less than inflation or typical interest rates and is just a side effect of leaving billions of dollars somewhere safer than a bank account
@@Septimus_ii one is greater than zero. when it isn't your money that's earning interest, you'll literally take anything. it's a (legal) scam to dupe the stupid.
good on you for getting on the ABC!
Starbucks is just exchanging cash for stars. Unfortunately those stars aren’t as liquid (no pun intended) outside of the Starbucks ecosystem. I think this is OK as long as you, the customer, is aware and accepting of that.
This is not ok at all as Star is not playing by the same financial rules and regulations as the other financial institutions are. Lots of cards are lost and never redeemed resulting in a windfall of free money. No interest is paid on the funds held in the cards. The freebees have expiry times so many are not redeemed. Which brings to mind Walmart asking for charity donations at the cash register. They don’t provide tax slips to claim on income tax filing. Walmart collects all this money for charities, receives all the credit and goodwill, plus receives tax credits to reduce their taxable income. They financially score off the backs of the donators. Unbelievable!
I imagine that the terms of service state that after putting money in, it's Starbuck's. In which case, what they do with it after is up to them. We wouldn't question Starbucks investing the profit on the coffee you purchased so if the reward card is treated the same as buying a gift card, it's already their money.
However, if regulation steps in to say that customers *should* be allowed to pull their money out, than Starbucks has truly become a bank and probably should be regulated as one.
I'm pretty sure this is exactly what "bla bla car does". Although they do not have a system to get your money via credits, but they do retain your money several days until you get paid by passengers (or if you are a passenger, many days until you get your money back in a refund).
The main thing that concerns me with this sort of scheme is risk. The customer thinks they're putting some coffee money away in a safe place for convenience. In fact the bank is investing it. Sure it's a safe, low rate of return, but sometimes safe investments go down too in a financial downturn. And over time, Starbucks may start to get more risky as the profit potential calls to them. Eventually we may see a day where people want their SB money to buy coffee etc and SB says "it's gone!". If that happens when the company also is facing a downturn of its own, that gets ugly.
but its not like they ever tell you , you can get your points back as cash.... what they really owe you is coffee..... so i dont really see the risk here, the only risk really is that starbucks goes bankrupt and ceases to exist, in which case the points loose all value. I dont see any other risk in this at all, if Starbucks takes my money and gambles it all away.... idc, im just owed a coffee
In the US at least most states (probably all) have unclaimed funds statutes. What than means is that is a customer places a deposit for the potential future purchase of product but fails to use it, the company that receives the deposit has an obligation to return the funds to that customer. The company must make a reasonable effort to return the funds and if they fail to do so after a set period of time the unclaimed funds must be sent to the state. The company may not retain these funds. These laws are referred to as escheat statutes. Every company operating these types of programs probably has a team of accountants that deal with these issues either internally or externally.
ONly applies to accounts with an identifiable owner. Gift cards are essentially bearer accounts, meaning you don['t have to identify yourself as the owner. All you have to do is have a card and present it at the payment terminal.
This is why we need to support local coffee shops.
This sounds like what the NSW gov did with the opal cards when first released. It was a min $50 to put on a card and you had no alternative at the time. So for people like me who use the train 3-4 times a year, I had $40+ sitting on it which the gov made interest on
That’s what all businesses are today. To eventually be a bank. That’s what “leveling up “ is, right?
Imagine how much money make those companies that offer prepaid cards, how many of us left some cents in our accounts and didn't spend them because there was nothing we could purchase with them? Those cents become a huge sum that can be invested just like starbucks does and make millions.
I never liked Starbucks or their food I’ll keep supporting small businesses. Informative video
With the transfer of property funds are held by attorneys for a couple months, they often place it into an interest yielding account while deeds are documented, benefits everybody.
Now banks on the other hand, one thing needs to change, fractional reserve should be increased to +50% LTV or something absurd like that, perhaps they'll stop burning out every 10 years.
This is happening at a very huge scale with most of large corporations and even people know it is happening.
Fun fact about UK supermarkets (probably elsewhere too), they make a lot of money from their credit cards. That's why you always see them advertised everywhere. They are very cash rich at any one time and they make a lot of money by lending out that money. In fact this is why their suppliers are often pissed off because these big chains take so long to pay them because they want to hold onto that money for as long as possible.
In store credit cards are at least beholden to the rules and regulations surrounding credit cards, this program at Starbucks is likely free to change the terms and conditions at will. It's apples and oranges.
@@Skoozi Yea and people voluntarily give them the money. Suppliers who are waiting months for payment are not really signing up to their money being lent out but have no choice.
I really don't see the issue with this. Customer's get free stuff and Starbucks makes more profit. Basically the definition of a win-win.
Exactly. Pretty smart and obvious way to make more profit for Starbucks
The issue is the lack of transparency for the customer. When you go to upload money onto your card/account, it doesn’t conspicuously state they’re going to take that money and use it to invest to make profit off of it.
@@YaYousef5 Banks do the same thing. But we don't seem to care about that do we? Consumers need to be wise where they park their money.
@@raghu7174 one of them is a bank. The other is a franchise where you can get 4 days off sugar and caffeine in a single drink. That’s the difference. There needs to be transparency.
@@YaYousef5 Why does there need to be transparency? If there was risk of customers losing their money then I'd agree, but if the investments are risk free or otherwise 100% covered by Starbucks, then it doesn't affect customers at all.
when I worked engineering, we had a coffee vending machine on our floor... you know the kind, ID-card driven, punch the code of drink, out comes the cup.
it worked by both slot card AND coins, so many of us would have spare coins on us at any time in case the card didn't work for whatever reason.
it didn't take us much to see that *WHEN* the machine wouldn't have coins itself to return change, we'd be losing money if we put in coins ourselves to pay... so, we always put in the card, in addition to whatever coins we had laying around.
when taking out the card, the leftover change would be charged TO the card automatically... no change expended BY the machine whatsoever.
that exactly is what SB is doing here: keeping the change for future purchases.
take out all the fancy terminology, the visuals and the promotions, and that's all there is: they up the prices to uneven values so that there would be an excess to every purchase, and they don't pay it back in change... they charge it back to the account, through credits.
....an account, that you're already paying for, to be a member and use the system.
Other than the issue of pre-loaded cards psychologically priming people to spend more + hoping you never spend it all, what's the difference between Starbucks taking & investing money from an app vs from a transaction?
Because the transaction is an exchange of money for goods and services where the customer gets their coffee and Starbucks gets a profit from providing that coffee. The app is transfer of money to potentially be used in the future, unless lost or forgotten, during which time Starbucks earns interest off it without providing any value upfront. So I take your $10 dollars and then some time later when I've grown it to $20 you come in and I give you a $10 coffee (which doesn't cost me anywhere near that price) They're double dipping, you're giving them money and they never have to pay it back, at worst they have to give you some overpriced beverages as compensation.
What you didn’t mention is if there is an approximate value of Starbucks Stars? This reward to the customer is where regulators could step in in the same way gambling machines have to give a fixed percentage long term??
As long as their investment losses don't hurt the customer balance, I say it's smart money for Starbucks and the risk needs to be 100% on them.
The risk is on them, unless they went bankrupt, then like any gift card balance you’ve lost it
@philthornton1382 well gift cards are exempt from bankruptcy, they need to ask for court permission for that. If that's the case, I support Starbucks investing our unused gift card money as long as it doesn't interrupt our use of it. I think it's a great idea for them, good for them.
@@StalkedByLosers With Starbucks program it's not a gift card, that's the whole issue. It's like buying in game currency on a mobile game, sure those could be used to buy things in game but the program can be shut down or modified at the will of the company because it's not protected by the same rules surrounding gift cards.
@@StalkedByLosers gift cards are an unsecured creditor and pretty much last in the queue in the majority of the world
@@Skoozi ahh. I need to look into that. Not sure how that is.
“Welcome to another ColdFusion video” > “Welcome to another episode of ColdFusion”
Well their logo sure do look more like a bank logo than a coffee shop logo
ah yes, the siren song..
Yeah, a truly pretty ingenious scheme, as Starbucks is also, obviously, much more resistant to any form of a "bankrun" and doesn't offer a cash refund on giftcards. Thus, even if the company goes on the verge of bankruptcy and everyone grabs their forgotten gift cards and rushes to the stores to grab smth while it's still going - well, in this worst-case scenario, people will simply participate in merchandise/perishable produce liquidation (which is only helpful), and won't be able to ask for a single penny of actual cash.
I'm surprised you didn't touch on the aspect that this "loan" from customers is not only interest-free, it's effectively "tax free." For each full $1 that Sbux receives from a customer (and turn into 0.05% profits), they will subsequently only have to give away ~97c worth of actual goods, as the rest will be sales taxes, taken out of the customer's balance, not the Sbux' pockets! Geez, that's a free license to print money, if you think about it.
It's like buying giftcards. Nothing new here.
Very, Very interesting!! My favorite videos are ones exposing business tactics. I would love to see more videos like this. Great music by the way!
They should give their customers a cashback program based on the money the customer gives starbucks as a loan.
Is it a loan, though? Consumers gave them money, nowhere does it say when and how they can use it. It's definitely a loophole.
Reminds me of a Wendover Productions video about how airlines are also doing something similar with their frequent flier rewards systems, to the point that the actual business is losing money and the rewards are the only profitable part.
Though that one didn’t involve investment; I have to rewatch to figure out where the profit came from in that.
I would VERY much more trust my money with any coffee shop, than with any big bank I know of!
When a small scale entrepreneur (incredibly) employed me as his salesman and during the interview asked me how I would sell the new specific physical product he wanted to introduce. I intuitively proposed to do it on a subscribtion basis. He laughed out loud, said that he appreciates my sense of humor and hired me. I did sell his product that way. He kept telling me that he likes my sense of humor. At the time I thought that it was a good sign having a boss saying that. When he later fired me, he repeated that he always appreciated my sense of humor. Only then did I understand the drawback of his attitude.
Because... I never joke.
Thing was, that it was a kind of emergency item that COULD become very valuable if something went wrong. Everyday it had no value. The installation cost, so to speak, was a bit hefty. But putting a duration on that payment flow made the monthly cost enough negligable in any budget reprioritation for any customer to deliberate in any internal bureaucratic cost reduction process to actually end the subscription. So NOT A SINGLE SUBSCRIBTION was ever cancelled.
The psychology of removing the safeguard we were providing, and then suddenly (unlikely, never happened to my knowledge, actually) that very item might've turned out to be very very needy, was always overwhelming for whomever in their organization might become the scapegoat for making that decision.
"Operative risk management" I think it is called academically. I like how the Swiss classify risk management:
1 Vertragen = Just take it as it comes!
2 Vermindern = Try to manage it operationally (my stuff described here)
3 Versichern = Enter a deal with the Devil to take over the risk!
4 Vermeiden = Avoid it, don't touch it!
My recommendation is either 1 or 4. Well, 2 is hopefully intuitive to us all in many ways, but don't take it so far as to *outsourcing* that one! It could become a ticking cost. And 3 is the worst because it cannot be anything but a ticking bomb. "When something goes wrong, someone else will take care of it!" Yeah, sure...
Going to find out more about this AI series stat. Super pleased for you!
I think it’s fine as long as Starbucks customers don’t lose their money in the trading - I.e. Starbucks doesn’t take a loss in the trades and then suddenly the consumer lost what they loaded on the card
Well I'm sure Starbucks has terms in the fine print that allow them to cancel, change or modify the program at their discretion at any time without warning.
Congratulations on the ABC partnership mate. That’s awesome!
I knew something sketchy was going on when i tried to sign up years ago and they wouldnt allow a payment method other than deposited money. I didnt like the system holding my money so I never signed up.
I've had multiple Starbucks cards over the years. If ever I find a random one, I take it to Starbucks and get them to check if there's money on it. If yes, I buy a coffee, if no, I put the card away for another time. They need to be transparent about how the cards really work, otherwise they are getting more wealthy off other people's money and all without permission, which really rankles me. Thanks for the video. I love Starbucks but now I know what they are doing with their cards, I'll make sure I only use cash in their store.
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That's not a loan . . . You can't get back a fungible currency. It's just digital gift cards.
Here's a solution. If you're a Starbuck's addict (who isn't), either pay for each purchase individually or link a credit card to your Starbucks card and use that as the payment source. The latter option will still earn you "stars" while not giving Starbucks free money.
I don't do Starbucks. I do drugs like a real addict 😂
Don’t all big businesses & corporations do this to some degree? For example, These businesses are quick to take your hard earned cash with a swipe in literally seconds, yet when you need a refund or your money back it takes 2 - 3 business days (sometimes up to a week) to go back into your account/card.. I assumed in those days waiting for your money to return to you that these businesses were just using it to gain some interest before returning it to you (but on a huge scale & gaining millions of dollars everyday they get to borrow it from you.)
If you're a regular customer, let's say 50 bucks a month, I don't see the harm.
Over a year, they make 30 cents out of the money you put in there, and that's if you don't use it.
Let's be real, there's no way the rewards have a market value of less than 30 cents, so I feel it's a win win situation.
It’s just a highly clever accounting practice. More effective way to raise fund with a coffee shop is selling a gift card which has say 10-20 cups of coffee, then you’ve generated sales and by extension pure revenue, then those revenues can be invested to improve cash flow. What Starbucks is doing is sort of leveraging on deposits. High risk high reward.
I haven't been to a Starbucks since 2016. I don't know how it is in other countries or how it is now even here in Ireland, but back then they did not have organic coffee only the regular one which is drenched in pesticide and herbicide etc, coffee beans are always on the list of dirty dozen, and they didn't use filtered water only regular tap water which is full of chlorine, fluoride and other really dodgy chemicals. So they didn't even have coffee, it was more of a weird concoction of nasty chemicals which you can sip through a plastic lid. 🤢🤮🤮🤮 7 years have gone by and I'm not missing a thing. 🤷♂
Thank you for sharing the ABC AI Series.
I think the most valid challenge to the legality of this business practice would be from small traditional local coffee shop claiming (correctly) that monopoly abuse under the Sherman Act was happening ie unfair competition as a result of a monopoly benefit. Same argument applies to news journalism publishers attacking Apple Microsoft and Google's ability to promote THEIR new publishing services in the search engine, or the OS.
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I’m a Starbucks rewards member, since it’s inception. Here are my thoughts:
There is absolutely nothing wrong with any corporation attempting to make a profit on money that is, essentially, alternative theirs.
As long as the rewards program makes good on their free products, it’s totally fine.
Why can’t Starbucks use the money it makes to subsidize the free products?
If you want your money back, just ask at a Starbucks.
In terms of this nonsense of trying to “protect the consumer”, it’s bull.
If you aren’t allocating those funds for your Starbucks products, then don’t load up your card.
Have some control over yourself.
Bank Dez nutz
❤
Great job doing the collabo with ABC!!!
This practice is largely unchanged since department stores began offering gift certificates about a hundred years ago. My first experience with the twist of adding rewards to gift certificates was McDonald's in the 1970s when you could buy booklets of discounted certificates that could be redeemed for face value. This particular installment of ColdFusion may have been better titled as "Water is Wet."
Every company that holds customer money in the short term use this method to earn some interest on the money they are holding. Starbucks is not the first company to do this. It started with insurance companies and banks, but a cafe franchise doing this is certainly never heard of. Even companies that take preorders or deposits, like Tesla, do the same thing. It has become a norm. It makes financial sense from a company's perspective.
In fact, people should follow this in their personal lives as well. Do not give money to companies that will keep them for months or years and you get low to no interest in return, like a preorder or deposit. Invest that money somewhere in the short term.
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This is happening everywhere...both "free loan" and "endless payment" models. The latter is to do with paying for subscriptions everywhere. This includes software that you would have normally bought outright before, and even features in cars which now have to be paid by subscription, even if you've bought a car and it belongs to you (see BMW). There is a washing machine company in Germany that is now furnishing apartment buildings with machines that are activated via an app by the residents of said buildings. To use them the residents must first "top up" a credit account in the app with 20 Euros!! So instead of paying their loads of laundry as they go, they now have to pay 20 Euros worth of washes in advance! This way the company (Miele) gets a free loan of 20 euros from everyone in the building. And, unlike Starbucks, there is no incentive associated with the loan: washing a load is not cheaper. In fact, it's more expensive than usual, at 2 euros per load.
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I don't like any company doing stuff like this, but most similar companies do the same thing. Any company taking money up front in any form at all, will earn interest until the money ends up spent by you, or in your bank account. My own experience with agencies I deal with daily where a customer pays them, is that my commission takes longer and longer to appear in my hands. Several middle-men take a cut and keep hold of the funds for as long as they dare. I even increasingly see digital purchases refunded after a month or so, with an immediate sale again at the same price, which means they have more time before they have to actually part with funds. It's so unfair but nothing is done to stop it.
Theres actually tons of companies that do this in many ways. And it has gotten a lot more important over the past year because interest rates are high
Seems fine. Doesn't need any regulation. That would be silly for such a scheme. What really is mind boggling is that so many people can stomach the crap that starbucks sells
The best part about Starbucks Cards is they offer as a currency exchange as well.
I think Starbucks should have to get consent from the consumer to invest/use the money parked in the Rewards program the way they use it. I feel like it should be relatively simple for them to still make money even if the "can we use your money to invest?" was opt-in. All they'd have to do is tweak the Rewards system so that opting in would grant some extra benefit to the consumer, the way that (in the U.S. at least) using your debt/credit card in the app grants you a 1x of Rewards points, but using money deposited directly into the Starbucks app (the money they can then invest with) grants a 2x multiplier. They could figure something like that out to entice people to opt in. They'll never need to do this though long as what they're doing continues to be in the gray area and under the radar from governing bodies that would maybe want to crack down on it though. But if they did get pressure i feel like it'd be very easy to tweak to make it work and still be very profitable for them.
Mcdonalds has a pre-order app now (at least in Australia) rest assured they'll be doing this next.
One of the largest financing companies was General Electric, which has little to do with electricity, although they got beat up a bit in 20008/09.
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. How do i get a loan from starbucks?
This isn't a "new" business idea. Companies have been doing it for years now. Even if some people do think it's shady, it's THEIR money once it leaves your bank. You've deposited it into a store on the understanding that it can only be used there. You're agreeing upfront that you promise to spend it there and only there. The company can do what they want with it. As long as they have the cash flow to re-order stock, it's up to them to invest however they see fit.
Nice report Dagogo, and nice track at the end there. It doesn't seem as bad as some of what the financial sector has given us here in the US. I definitely think they should be regulated. What they do with that money should be known at least by regulators.
I'm not sure if it's still the current model. But a decade ago, HERTZ car rentals used to charge customers for insurance and the "excess" fee for damages. But they never actually had any insurance on the vehicles. It was an in-house damage vs returns decision.
IE. 1 in every 200 cars gets written off it's built into their model and cheaper than paying insurance on fleets. Etc...
So you could call it fraud in one sense by selling something that never existed
It seems more and more that the meta business goal is to move from a traditional business model like products or services to any form of unregulated banking as soon as possible. You see this with car dealerships, airlines, and now coffee.
Yup. Watch "how airlines quietly became banks".
" Exchange start for food... " a prelude for a dystopia in the making. Scary !
Many companies do the same thing in my opinion, not alone Starbucks. The gift card purchased means the co receives money before you actually spend. So the money is free money they invest some where . As long as customers are not cheated and they get the rewards I think it is ok.
As I understand, you cannot withdraw the funds once deposited in the Starbucks wallet. So that’s worse than banks and gives them a ‘guarantee’ that the money is theirs. Therefore, unlike banks they don’t need to keep a reserve in case people withdraw money nor face the risk of a bank run. People should be allowed to withdraw their money because they technically have not delivered the goods at the point of making deposits. I hope the regulators implement this and not just require them to get a license.
but this is just part of the arrangement, its not really a bank as we think of it, becouse no one is using starbucks points as a way of saving there money and retirement.... thats why banks have strict regulations. The only bad thing that can happen to you, is if Starbucks goes out of business , and your points are useless. But if this scheme helps them be even more profitable, i dont really see how this would increasing the risk of anything.
Also Starbucks always increase there prices during the end of the year when you get those next year planner. You didn't notice it if you are a casual drinker you would not notice but because you are attaining a goal for a planner or notebook/ tumbler you just take in the price and that price will be the price for the next year. Very devious but very creative. they tried to do a explainer and only got a backlash but now they no longer announce the hike they just slide it in every end of year.
I'm not sure what time frame the "0.05%" refers to, but if companies estimate how much of the funds from customers are truly "lost" (funds that will never be redeemed), they could move those funds to long-term, higher-yield products, possibly even just buying stocks (such as Starbucks stock!). Sorry, I'm not sure I'm helping.