The Neo Bank that Grew its Deposits to $1.6B

Starbucks is a bank. Today, that “bank” has 24m+ members and $1.6B in “deposits".

Here is the backstory of worlds largest Neo Bank - Starbucks : 

• In 1994 they have 425 total stores in their 23rd year

• By 1999 They opened 625 new stores

• By 2007 They where opening 3500 stores per year

But eventually, this growth backfired. Stores were opened because of centralized targets, not local demand. The food smelled bad, customer experience degraded & same-stores sales growth fell.

In 2008, they had to close 600 stores, lay off 12,000 employees & stock fell 73%.

Schultz took over the CEO's job in 2008 and launched a program that led to the cliche - “Starbucks is a bank.” Today, that “bank” has 24m+ members and $1.6B in “Deposits”.

The Turnaround Plan involved:

1) Gift card -- It was first launched in 2001, the reloadable card was popular but -- in 2008 -- customers cut spending. To entice them, the card was paired with a new loyalty program in April 2008.

2) Rewards -- It started with free WIFI and refills. Starbucks unveiled its Starbucks Card Mobile app in 2010. It was usable across 9000 US locations and was instantly America’s largest combined mobile payments and loyalty program.

By 2011, 1 in 4 Starbucks transactions (25%) were done via the revamped Starbucks Card program. Starbucks Rewards now has 24m+ members and spending on the Card program has exploded.

In the decade after the gift card launched (2001-2011), customers spent $10B total on it. Today, they load or reload $10B+ per year on the Card program (40-45% of the chain's entire sales).

The perks and program are habit building. And customers happily keep the Card loaded with money for future consumption.

 Anything that isn't spent is kept on Starbucks ' balance sheet as stored card value. Since 2016, that value has exceeded $1B at the end of every fiscal year.

For Starbucks, stored card value is effectively a "bank deposit". It is recorded as a liability and Starbucks can use the funds immediately for the business.

Stored value has fewer regulatory requirements, though:

• It can't be redeemed for cash

• It doesn't offer interest

• It isn't insured

To put Starbucks ' $1B+ in stored value in context, consider that 85% of US banks have less than $1B in assets.  

While not an apples-to-apple comparison, Starbucks card “deposits” are clearly made Starbucks bigger than most banks, fintech or Neo Banks.

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- Author of this article is Abhinav Paliwal CEO of PayNet Systems, one of the leading White Label Digital Banking and Payments Solution Provider. ( www.paynet.pro)