I was reading a most amusing post where the writer offers innovative ways to stack away your cash at home. “Don’t store it under the mattress,” he cautions. Apparently, in the event of a burglary that is one of the first places the thieves look for cash. (Seriously?) He goes on to creatively suggest 20 options.
Well, I just learnt today that if individuals are not looking at bank accounts or “creative hideaways”, they could be stashing it in their Starbucks accounts.
Surprised? I was too.
Henry Williams and Telis Demos of the Wall Street Journal sifted through S&P Global Market Intelligence (2016 first quarter data) to find out “where money lives” in the U.S. Naturally, demand deposits (can be withdrawn anytime without notice) were most popular.
Here are the top five banks that have the largest amount of U.S. demand deposits or comparable measure. Do note the yawning gap between the second and third slot.
- Bank of America: $427.19 billion
- J P Morgan Chase: $383.28 billion
- S. Bancorp: $80.27 billion
- Bank of New York Mellon Corp: $71.09 billion
- Wells Fargo: $ 67.81 billion
PayPal had $13.02 billion in global customer account balances. PayPal is not a bank. The money it holds isn't insured deposits. The company has a huge customer base that keeps money in accounts, and it links to services including mobile and online payments, credit cards, loans, and other services.
Starbucks had $1.20 billion loaded onto cards /apps worldwide. Starbucks is also not a bank. The money it holds isn't insured deposits. Well, then how does it get to sit on so much cash? The money loaded onto Starbucks cards and its mobile app is used to order and pay in Starbucks stores.
An article in Fool.com speaks of the gold mine Starbucks unearthed with these prepaid loyalty cards. When cards are loaded, the coffee retailer receives funds instantly. It records accruals each month against liabilities for unused card balances, and even gets a small profit boost from the monies left on cards which aren't redeemed after a reasonable period. Excluding a one-time $2.8 billion legal accrual over a licensing dispute with Mondelez International, no other item has affected Starbucks’ working capital with as much effect as the balance sheet account known as "stored card liability." Offering prepaid cards has resulted in a positive net cash benefit to Starbucks, which has averaged $150 million annually over the past three years.
Gartner payments analyst Avivah Litan is not surprised. In MarketWatch, she explained that payment processing is expensive, and big retailers are tired of sharing revenue with big banks. Paying more for payments eats into profits. The only way around it is to create payment mechanics that generate revenue. In other words, retailers have to act more like banks (her words, not mine).
Starbucks recently announced a new debit card that sounds a lot like an airline miles card. Starbucks plastic, co-branded with Chase Bank, will enable fans to use it at almost any store. But it won’t be a credit card – it will be a prepaid debit card.
Very smart indeed! No wonder its cash figure exceeds the deposits at many actual financial institutions. There were around 250 listed in the research, and Starbucks was positioned around 105.
So next time you pick up your latte, think of buying the stock too.
