Yahoo Finance Sneaky way Starbucks gets its customers to loan it $2.3b interest-free
One eagle-eyed caffeine lover has discovered a sneaky way US coffee giant Starbucks has taken out a US$1.6 billion (AU$2.3 billion) loan - with its customers.
“Wow Starbucks, what a great gig,” John Koning tweeted.
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“Starbucks has ~[US]$1.6 billion in ‘stored value card liabilities’ i.e the Starbucks Card. So ~6 per cent of the firm’s liabilities are comprised of the coffee addicts paying 0 per cent for the privilege of lending to their supplier.”
Wow Starbucks, what a great gig.
Starbucks has ~$1.6 billion in 'stored value card liabilities' i.e. the Starbucks Card. So ~6% of the firm's liabilities are comprised of coffee addicts paying 0% for the privilege of lending to their supplier.
Source: https://t.co/nGH2arujYz pic.twitter.com/cGcSW3L4MM— John Paul Koning (@jp_koning) August 11, 2019
What does that mean?
‘Stored value card liabilities’ refers to the cash customers are putting on their Starbucks Card that they haven’t spent yet.
Starbucks Cards are available in Australia: for $5, you can load up as much as $200 on the rewards card and reap rewards like a free drink every 10th purchase or invites to exclusive offers and events.
And even though you haven’t spent that money, it’s technically already Starbucks’.
In a lengthy blog post, Koning explained the card balances “simultaneously function as a loan to Starbucks”.
“Starbucks doesn't pay any interest on balances held in the Starbucks app or gift cards. You, the loyal customer, are providing the company with free debt,” he said.
Is this normal practice?
According to Koning, PayPal does this as well.
Customers who hold PayPal balances effectively act as PayPal’s creditors - and those ‘customer loans’ to PayPal currently amount to over US$20 billion.
“Like Starbucks, PayPal doesn't pay its customers a shred of interest.”
But, Koning said PayPal is required to keep its customers’ funds in a separate bank account, while Starbucks is not.
“PayPal allows people to cash-out of PayPal dollars into regular dollars, so for regulatory purposes it must keep an adequate reserve on hand to facilitate redemptions.
“But the only way to cash out of Starbucks balances is to buy a coffee--a promise that Starbucks can always keep! And so Starbucks can immediately put its customer loans to work in higher-yielding opportunities like funding its operations and expansion.”
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