Embedded Finance

Guest post: Marcel van Oost

Special guest author, Marcel Van Oost, Founder of Connecting the Dots in Fintech.

“As a former startup founder in payments, I used to start my day by reading FinTech News. Out of personal interest I was keeping an eye on the market and looking for new opportunities. Since following the news was a time-consuming task, I decided to start sharing my daily research on LinkedIn and not long after started a personal newsletter. By curating the news I was doing the heavy lifting and helping others to stay up-to-date. A few years later my morning ritual has got out of hand...I am proud to see, that what started as a tagline on LinkedIn, has evolved into the greatest FinTech community I could think of.”

Learn more about Marcel and Connecting the Dots in Fintech, here.

Why Starbucks app is actually a Bankingapp


Starbucks' hugely popular rewards program held $1.8bn in customer cash as of April 2. If Starbucks was a bank, that would make it bigger than 90 percent of institutions covered by the US FDIC by deposit size. 

Contrary to banks, which must maintain cash reserves to prepare for potential mass withdrawals, the coffeehouse chain only needs to stock up on coffee and snacks.

This is why the Starbucks app is actually a Bankingapp :

In November 2001, Starbucks initiated a significant shift in its business model with the introduction of the Starbucks Card. Initially handed out to associates as a prototype, it wasn't long before the card was released to the public. 

The card was a huge success and was adopted by millions of users within the first year. The total amount deposited into the Starbucks card in its first year crossed $2.4 billion. 

Over time, through continuous refinement, the Starbucks Card evolved into a rewards program and ultimately the Starbucks Gold Card, specially designed to provide additional perks and in-store benefits to the brand's most loyal patrons.

The year 2009 marked a significant merger of these ideas into My Starbucks Rewards, coinciding with the launch of the Starbucks Card Mobile application. This innovation allowed U.S. customers to monitor their balance, top-up their cards, and review transactions. 


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Simultaneously, Starbucks strived to offer a more streamlined payment service for its customers by providing various payment options:

In the US Starbucks ventured into mobile payments through a partnership with Square, revolutionizing the retail sector by providing customers an efficient means to discover local businesses, peruse menu details, check store hours, and review their transaction history, all through their mobile phones.

In August 2012, Starbucks invested $25 million in Square, and Square became its exclusive processor of debit and credit card payments for all 7,000-plus stores in the United States.

Next, Starbucks chose J.P. Morgan’s Chase Commerce Solutions as its payment processing tool, which paved the way for a nationwide rollout, taking into account the surge of innovation in the digital payment landscape.

By collaborating with Amazon, Starbucks introduced the “Starbucks Pickup with Amazon Go”. This innovative store concept enables customers to skip the checkout process when they pre-pay for their orders through the Starbucks app.


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Source: Whitesight


The next objective on Starbucks' agenda was to extend its trademark customer convenience and personalized touch to a global audience:

In the UK, Starbucks partnered with Barclaycard to offer contactless payments, positioning itself as one of the early adopters of payment technology among high street retailers.

Bridging the gap between technological advancement and customer experience, Starbucks Japan unveiled Starbucks Touch: The Pen - a unique gadget featuring a built-in NFC wallet for effortless payments.

Navigating to the arid regions of Saudi Arabia and UAE, Starbucks teamed up with Visa to promote the use of Apple Pay. The incentive for Visa cardholders was free upsize/upgrades on their orders when making payments through Apple Pay.

Starbucks further extended its reach by forging a strategic partnership with Grab's delivery network throughout Southeast Asia, integrating the order and in-store channels to further enhance the Starbucks Experience.

The coffee giant also collaborated with Vietnamese e-wallet service, MoMo, with the aspiration of providing a novel and enhanced customer experience.



The coffee behemoth embarked on its Web3 journey as early as 2018, forming a collaboration with Microsoft to enable cryptocurrency payments for its products. 

In the subsequent year, it brokered a deal with the much-anticipated Bakkt Bitcoin trading platform, enabling Bitcoin transactions in its stores. 

It wasn’t until 2021 that Starbucks actually began to leverage the now-launched Bakkt wallet for Bitcoin payments in the US. 


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Starbucks Odyssey Polygon


These partnerships offered avenues to access an untapped, potentially vast market, thereby boosting Starbucks' popularity among cryptocurrency enthusiasts.


Fast forward to 2023:

The Starbucks app boasts an impressive 31 million active users. 

Customers can add funds to their accounts using Starbucks gift cards, or by connecting Apple Pay or payment cards to the app. 

Each purchase made through the app earns users loyalty points (known as Stars), redeemable for benefits like free refills, beverages, or sandwiches.

A clever aspect of this strategy is that customers paying with funds deposited on the Starbucks app receive additional loyalty points. 

Within the customer loyalty space, Starbucks has consistently been credited with having one of the best rewards programs with a loyal customer following. 

Because of the company’s reputation, customers are not afraid to keep money in their Starbucks account, knowing that they can use it anytime. 

The numbers speak for themselves: 

The "stored value card liability and current portion of deferred revenue" – unspent money that coffee lovers have loaded onto the app – amounted to $1.8 billion in the previous quarter.

This unused cash has been compared to interest-free capital for Starbucks.

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Furthermore, some gift card funds are never redeemed by customers, allowing Starbucks to retain the entire amount.

In its latest fiscal year, the company reported approximately $196 million in such "breakage revenue." Although it accounts for less than 1% of Starbucks' annual net revenue, it is essentially free money.

There is another benefit of encouraging users to pay for their purchases using the funds stored in their Starbucks accounts: fewer payment processing fees.

Starbucks' rewards program is an innovative example of a non-banking entity using loyalty and trust to amass significant customer deposits.

This forward-thinking approach led many to categorize Starbucks as a 'neobank', 'FinTech', or even 'an unregulated bank'.

Written by Marcel van Oost