The Wall Street Journal revealed on June 1 that Starbucks holds as much money for its customers as a bank — and not even a small bank. Starbucks gift cards and mobile debit accounts stored$1.2 billionin customer funds during the first quarter of 2016.According toShane Ferro on the Huffington Post, "that amount of deposits would make it a respectable midsize institution." Industry numbers put itsomewhere betweenThe Bancorp ($2.68 billion) and Mercantile Bank ($680 million).
Starbucks has pretty much mastered the prepaid realm. On Christmas Eve 2014, Starbucks sold almost2.5 milliongift cards in the U.S. and Canada alone. The companysaysone in seven Americans received a Starbucks card for the holidays that year. It's "Starbucks' secret sauce,"writesJames Sullivan on The Motley Fool — a wildly successful networking of gift cards, mobile debit app and customer loyalty program that's creating a prepaid empire.
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共享Spoils
Starbucks is noteworthy, but it's not alone. U.S. consumers bought2 billiongift cards in 2014, "depositing" a total of$124 billionin businesses like Visa, American Express, Amazon, iTunes, Walmart and Target, all of which sold more gift cards than Starbucks that year, according toCardHub.
And of that $124 billion,$750 million, or 0.6 percent, was never redeemed. The industry jargon is "breakage" — money left on gift cards indefinitely, which the issuers eventually claim as revenue. It's a huge moneymaker. In 2008, the year beforethe CARD Actestablished new regulations for expiration dates and fees, gift-card breakage was about $7 billion, or roughly 7 percent of total purchases.
People leave so much money on gift cards that the Financial Accounting Standards Board issued an update in 2014 to offer clearer guidelines on what to do with it. Abraham Fried, Mark P. Holtzman and Aliza Rotensteinwritein the Journal of Accountancy that "Financially, a gift card is essentially an interest-free loan from the consumer to the retailer" — but it's a loan that may never come due. Accountants weren't sure when they could move the unredeemed value of a gift card from the liability column to the revenue column.
That move,notes Sullivan, "helps with margins."
"A person with a $100 gift card may purchase a $98 item and throw the card away," he writes. "When this happens, the retailer delivered $98 of products for $100 in revenue."
The fact that65 percentof people end up spending 38 percent more than the card's value probably helps with margins, too.
Even More of a Good Thing
The gift-card market will likely continue its rapid expansion. There's just no downside for businesses, and analystsexpectspending to hit $160 billion by 2018.
The digital realm offers plenty of room to grow: Consumers spent$5 billionon e-gift cards in 2013,$5.5 billionin 2014 and $7.1 billion in 2015, and CEB Financial Servicesprojectsan $18 billion digital gift-card market by 2018.
Some see the gift card replacing the coupon.
Gift cardshavea higher redemption rate than promotional coupons. So instead of receiving, say, a "$4 off your next visit" coupon when your latte comes out soy instead of skim again, you get a $4 Starbucks gift card.
"It feels like free money," a marketing executiveexplainedto CNN Money in 2015, "but you have to go back in and spend it."
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