How to Make your Café Actually A Banking Business like Starbucks

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If you run or are considering running a café, you might be wondering how you can compete with Starbucks, the multinational coffee chain that operates more than 30,000 locations globally. 

Starbucks is like a bank that makes money from deposits from customers, loyalty programs, and mobile apps. It is more than just a coffee shop.

How Starbucks Operates Like A Bank

Starbucks is not only the biggest coffee chain in the world, but it also functions somewhat similarly to a bank. Starbucks Rewards, its loyalty program, allows users to preload money into their accounts using credit cards or gift cards, and this generates significant revenue flow for the corporation. Then, you may use this cash to make purchases and collect stars that can be exchanged for free or reduced goods. Starbucks Rewards members spent three times as much as non-members on a 2016 conference call, and in 2022, they will make up 53% of sales in company-operated stores in the United States.

Starbucks has access to a low-cost source of cash through the holding of client deposits, which it can use for internal objectives like investing in new locations, technology, or marketing. According to The Wall Street Journal, Starbucks actually retained more client deposits in 2015 than some banks did in cash. Moreover, Starbucks provides financial services and goods such as credit cards, loans, and prepaid cards in association with banks. While customers enjoy their coffee, they may access financial services through these items, which also bring in money for Starbucks in the form of fees and interest.

Starbucks also functions as a community center where people may gather, conduct business, or socialize. To adapt to its consumers' shifting demands, Starbucks has extensively invested in its digital infrastructure, including smartphone ordering, delivery, and drive-thru alternatives. But, it also appreciates the need of establishing a warm and inviting space where clients may spend both time and money. Starbucks draws clients who may otherwise go to a bank branch or an office by providing free Wi-Fi, charging stations, and plush seats.

Because of its use of cashless transactions, smartphone rewards programs, and community center services, Starbucks functions similarly to a bank. It also makes use of bank relationships and consumer deposits to increase revenue and broaden its product offerings. As a result, Starbucks has developed a devoted following and gained a competitive edge in the coffee market.

Starbucks App and Starbucks Rewards

The Starbucks App and the in-house loyalty program Starbucks Rewards are more than just convenient ways to order and pay for coffee and food. Additionally, they are a part of the Starbucks brand's unusual financial services ecosystem, which is home to millions of devoted patrons and billions of dollars worth of annual sales.

Customers may place orders in advance, pay with their phone, tip their barista, and accrue Stars with each transaction through the Starbucks App. Starbucks Rewards, a program that allows consumers to redeem free drinks, food, and other incentives based on how much they spend at Starbucks, uses stars as its unit of account. Additionally, the app gives users access to special discounts, custom recommendations, and music playlists.

The goal of the Starbucks Rewards program is to boost consumer loyalty and encourage repurchases. Consumers can sign up for the program by enrolling their Starbucks Card or app, and then using it to make purchases to accrue Stars. Depending on the nation, different rewards are available and different amounts of Stars are required to obtain them. Other benefits for customers include birthday goodies, free refills on coffee and tea, and even double Stars. Several nations have various membership tiers, such as Gold, which come with certain benefits.

The Starbucks App and Starbucks Rewards have formed an unlikely financial services ecosystem because they create a closed-loop system that keeps customers within the Starbucks brand. Using the rewards program and the app increases a customer's likelihood to spend more, return more frequently, and develop a lasting relationship with Starbucks. They also have a lower propensity to switch to different coffee shops or utilize other payment methods. For Starbucks, the app and rewards program also produce useful data that can be used to customize marketing efforts, streamline workflows, and enhance the customer experience.

Starbucks Rewards and the Starbucks App are two examples of how a coffee company can use technology and consumer loyalty to build an ecosystem of financial services that is advantageous to both the firm and its clients. Starbucks has developed a dedicated fan base that is prepared to pay more and stick with its brand by providing convenience, rewards, and customization.

Benefits of Starbucks Financial Services

Starbucks is a global leader in the coffee industry, but it also offers a range of financial services to its customers and partners. Some of the benefits that Starbucks reaps from its financial services are:

• Increased customer loyalty and retention: Customers can earn stars through the reward program Starbucks Rewards for each transaction. These stars can then be redeemed for free drinks, food, and merchandise. Also, customers may use the Starbucks app to place orders in advance, pay with their phones, and access customized deals. With the help of these services, customers can visit Starbucks more frequently and spend more money each time.
• Enhanced partner engagement and empowerment: Starbucks offers its partners, or employees, a range of financial perks, including health insurance, stock options, 401(k) plans, tuition reimbursement, and emergency aid. These perks make it easier to find and keep skilled, driven partners that provide outstanding customer service and quality.
• Diversified revenue streams and growth opportunities: Starbucks generates additional income from its financial services, such as fees from its co-branded credit cards, prepaid cards, gift cards, and mobile payments. These services also assist Starbucks in extending its clientele and entering new markets, particularly in developing nations where the use of digital payments is quickly increasing.

Is Starbucks Actually A Bank Now?

Now that Starbucks provides some sort of financial services, the question is: Is Starbucks a bank now? Now that customers may use their Starbucks cards to deposit and withdraw cash, some might claim that Starbucks is emulating a bank more and more.

First off, what exactly is a bank? A financial entity known as a bank lends money to borrowers and takes deposits from consumers. Other services offered by banks include payments, transfers, investments, and insurance. To preserve the stability and safety of the financial system, banks are subject to government regulation and must abide by a set of laws and regulations.

On the other hand, Starbucks is not a bank. It is a coffee business that also offers food, drinks, and goods. Starbucks also offers Starbucks Cards, prepaid cards that customers can use to make purchases at locations that accept them. Cash, credit cards, debit cards, or internet transfers can all be used by customers to load money onto their Starbucks cards. Also, users of the Starbucks app or website can check their balance and transaction history.

However, there are some aspects of Starbucks that make it resemble a bank. For example:

• Starbucks cards are a form of electronic money that can be used as a medium of exchange within the Starbucks network. The Starbucks app allows customers to send e-gifts to others and move money between their Starbucks cards.
• Starbucks cards have a monetary value that is kept in a centralized database under its management. Consumers only have a right to the funds stored on their Starbucks gift cards. Without giving customers prior notice, Starbucks is free to alter the terms and conditions of Starbucks cards at any moment.
• The money that customers place onto their Starbucks cards generates interest for Starbucks. As of 2019, Starbucks held around $1.6 billion in consumer cash, according to some estimates. Hence, without having to charge customers any interest, Starbucks may use this money for its own needs, such as investing or corporate growth.
• The government or any other organization does not insure Starbucks cards. Customers may lose the funds on their Starbucks cards without any redress if Starbucks experiences bankruptcy or a cyberattack.

As a result, it is clear that while Starbucks has some characteristics that give it the appearance of a bank, it is not one in the traditional sense. It does not offer additional financial services, accept deposits from customers, or lend money to them. It also does not adhere to the same rules and regulations as banks. Consumers should not use their Starbucks cards as bank accounts and should be aware of the dangers and restrictions associated with using them.

How Other Companies Can Embark on The Same Route as Starbucks

There are other businesses besides Starbucks that have been experimenting with their own payment methods. A number of other businesses, like Apple, Walmart, Uber, and Amazon, have already introduced or intend to launch their own digital wallets or cards that can be used to pay for their goods and services. Several businesses are adopting a similar approach to Starbucks in order to build a closed-loop payment network that can lower transaction costs, boost client retention, provide them access to client information, and generate interest money.

Making a good payment system, however, is challenging. It calls for a sizable and devoted client base, great brand awareness, an easy-to-use and safe technology platform, and a competitive edge over other payment options. It also entails important legal and operational risks, including adherence to consumer protection and anti-money laundering rules, defense against fraud and cyberattacks, and control over liquidity and interest rate changes.

Hence, businesses that want to follow Starbucks' example should carefully consider the advantages and disadvantages of developing their own payment system. Companies ought to think about collaborating with established payment platforms or providers who can give them access to a larger network of clients and vendors as well as knowledge and infrastructure for secure payment processing. For instance, Starbucks and Alibaba have a partnership in China that enables customers to pay for their purchases at Starbucks locations using Alipay, the largest mobile payment system in the nation.

How it all started – From Gift Cards to Embedded Finance

One of the earliest examples of embedded finance is the Starbucks reloadable card, which was introduced in 2001 as a way to offer customers more convenience and loyalty rewards. The reloadable card, in contrast to conventional one-time gift cards, allowed users to load money onto the card and use it to make purchases at any Starbucks shop. Customers could also use the card to collect stars for every dollar spent, which they could then exchange for free drinks and meals.

The reloadable card was a great hit since it enhanced customer loyalty, spending, and frequency. In its rewards program, Starbucks has more than 17 million active members as of 2019, and the reloadable card was used in more than 40% of its transactions in the United States. The reloadable card also provided Starbucks with important client information, which it utilized to tailor offers and suggestions. The reloadable card served as a platform for client interaction as well as a payment method.

The Starbucks reloadable card is an illustration of how embedded finance may produce new revenue streams and information for the company while simultaneously producing a seamless and satisfying customer experience. Financial services are incorporated into non-financial platforms like e-commerce, social media, tourism, and entertainment as embedded finance. These platforms may provide additional value and convenience to their users while also increasing customer loyalty, retention, and monetization by integrating finance into their core operations.

The Evolution of Starbucks' Loyalty Program

Since its founding in 1987, Starbucks has been well-known for its cutting-edge and customer-focused reward program. Customers who frequent Starbucks outlets and spend money there as well as those who interact with the company on social media and in other ways are rewarded by the program. In order to adapt to consumers' shifting requirements and preferences as well as take advantage of new technology and opportunities, the loyalty program has developed over time.

The introduction of the Starbucks App in 2009, which signaled the company's entry into the digital age, was one of the biggest improvements to the loyalty program at Starbucks. Customers could manage their loyalty accounts, pay for their orders, and earn Stars, a virtual currency that could be exchanged for cost-free drinks and food items, via the Starbucks App, a smartphone application. The software also allowed users to customize their orders, identify local retailers, and send e-gift cards to pals.

The Mobile Order and Pay feature was introduced by Starbucks in 2015 as a way to make ordering and paying for drinks more convenient and efficient for customers. Customers may now explore the menu, personalize their drinks, and pay for them in advance using the Starbucks app on their cell phones. After that, customers may avoid the wait and pick up their drinks from a specific location within the store.

The Mobile Order and Pay tool was created to improve customer satisfaction and shorten wait times for customers who are busy. Consumers could place orders from any participating Starbucks location in the United States, Canada, or the United Kingdom using this function. Customers were also able to collect stars and use rewards with every purchase thanks to the feature's integration with the Starbucks Rewards program. Starbucks had success with the Mobile Order and Pay option because it raised client satisfaction, loyalty, and sales.

The Starbucks App's stars were a standout feature since they gave the loyalty program a gamified twist. Consumers could accumulate Stars by making purchases at Starbucks locations, taking part in contests and challenges, and posting reviews and comments on social media. Several tiers of prizes, including free refills, birthday treats, and individualized offers, can be unlocked by using stars. The ability to compare one's Star count to that of other members and to compete for special benefits and awards helped Starbucks customers feel a feeling of community and belonging.

Conclusion

Some methods and strategies that we have covered in this post can help you turn your café into a banking establishment similar to Starbucks.

• First, you need to create a loyalty program that rewards your customers for spending more and using your app or card. 
• Second, you need to offer a variety of products and services that appeal to different segments and occasions. 
• Third, you need to leverage your data and analytics to understand your customer's preferences and behaviors and personalize your offers and promotions. 
• Fourth, you need to expand your presence and reach by opening more locations, partnering with other businesses, and creating a social media buzz. 

These actions will enable you to transform your café into a lucrative and successful banking enterprise, similar to Starbucks.