Among fast-food chains, Starbucks is unique in the way that it dominates mainstream culture.

Not only in the language it's trained us all to use — Tall, Grande, Venti, etc.,

But also in the scrutiny it receives…

No other cup design can command such controversy,

No other change of store policy gets so much media attention,

And no other drink has taken on such a life of its own as the Pumpkin Spice Latte.

Mocked, stereotyped, and yet still highly adored, Starbucks is known everywhere as the coffeeshop

almost in a league of its own.

But what you might not know is that, viewed from a financial perspective, Starbucks is

far more than a seller of expensive drinks — Starbucks has become a bank.

Whether you know it or not, Starbucks might already be your bank.

Its customers have lent the company around $1.6 billion dollars.

In some ways, Starbucks is a technology company, competing (favorably) with Paypal.

Even some traditional banks are fearful of what it might do next.

Why?

How did Starbucks, behind all of our backs, become a bank?

Arguably the first genius idea in Starbuck history was to carefully craft an experience

— its physical locations would be just as much an attraction as its coffee.

More than just a restaurant though, each coffeehouse was designed to act as a “third place”in our lives

— something that would complement both the rigid, formal setting that is the workplace and our private homes.

It was well-timed.

As it grew during the 90s and early 2000s, the number of “shared spaces” which served a communal, social, inclusive role were in decline.

Fewer malls, for example, were being built, and many sat empty or forgotten.

At the same time, many people were becoming self-employed or had begun working from home,

creating the need for a place with good WiFi, ample caffeine, and air conditioning.

Tacky as it may sound, Starbucks was also supposed to be friendly — in a small-town neighborhood kind of way,

encouraging its employees to get to know regulars, make small talk,

and personalize each cup with its customer's name — misspelled as they may be.

Besides these reasons, Starbucks grew thanks to its great branding, remarkable consistency,

and, yes, arguably, the taste of its coffee.

Most impressively, it expanded very rapidly without franchising.

The company believed, from the very beginning, that it needed to exert very tight control over every process and facet of its presentation.

It was also very good at scouting locations.

So much so that there's a so-called “Frappuccino Effect” in real estate — a significant increase in nearby property prices when a new location opens.

According to the CEO of Zillow, in the time a normal home has appreciated by 65%, one near a Starbucks location will have appreciated by 96%.

This is likely due in part to the perceived value of its convenience, but also, in large part, to Starbucks' ability to find up-and-coming neighborhoods before the rest of the market.

The very first location opened in Seattle in 1971,

There were 84 locations in 1990, 677 in 1995,

The first international, in Japan, during 1996,

3,501 by the turn of the millennium, And 16,680 in 2008.

At its peak, over 7 new stores were opening each day.

Around this time, however, Starbucks began showing signs that it had grown too big, too fast.

Some in the company attributed these issues to the wider global recession,

but it was hard to ignore the increasing competition from McDonald's, the concern about oversaturation,

and rising customer dissatisfaction.

This culminated when Howard Schultz, a board member at the time, wrote a brutally honest internal memo that was somehow leaked to the press.

The email openly questions its focus on efficiency and speed over quality, and suggests, politely, that the company had lost its “magic”.

It was time for a change.

If Starbucks was to continue being, Starbucks, it needed to do something drastic.

And that, it did.

Schultz, who wrote the leaked memo, was effectively the founder of modern Starbucks

— taking over the brand in 1982, back when it was just four little coffeehouses in the Pacific Northwest.

He stepped down in 2000 to devote his time to international expansion, with a focus on China.

But in the rocky times of 2008, Schultz was asked to return to the position of CEO.

He inherited the company's worst 3-month performance in its history, and was tasked with guiding it back to its glory days.

After just one month in his new role, Shultz made a drastic decision:

Things had gotten so sloppy, he needed to make a big gesture to reinvigorate the company.

He decided to close every single store for one day, at an estimated cost of $6 million dollars in lost profit.

That day, its 135,000 baristas, at the time, were reminded of the very basics — how to pour coffee, please customers, and pay attention to the details.

Later that year, a similar all-hands-on-board meeting was called at the corporate level.

10,000 of its partners were flown to New Orleans for an additional $30 million, where they were updated during a 3-day conference.

And then came the really hard part.

Starbucks closed 600 stores in 2008, followed by 300 more in 2009.

It did, on the other hand, continue offering free online college to every employee working more than 20 hours a week, in partnership with Arizona State University.

Among quick-serve restaurants, jobs at Starbucks are highly coveted and see lower than average turnover.

One of the less high profile changes was an increasing focus on technology.

This began with the introduction of the Starbucks Card.

For the uninitiated, the way it works now, in 2021, is this: Instead of paying with cash or credit card, you can also add money to your Starbucks account.

Then, you can pay with the app on your phone, giving you twice the number of “stars”, which let you redeem free drinks.

While this may not sound all that revolutionary, Starbucks is the most popular restaurant rewards app, allowing it to do what others can't...

Because of its size and customer loyalty, people are not afraid to keep decent chunks of their money in their Starbucks account, knowing they'll use it eventually.

41% of U.S. and Canadian users pay with their Starbucks card.

At the end of 2019, users held a collective $1.5 billion dollars in balances.

To put this in perspective, 85% of all U.S. banks have less than $1 billion dollars in total assets.

Customers will, of course, eventually exchange this money for coffee, but in the meantime,

unknowingly provide Starbucks with a $1.5 billion dollar loan, at 0% interest.

That's money Starbucks cou ld simply invest in the market, earning free money from the “generosity” of its users, or spend on building more stores.

Actually, it's even better than that.

About 10% of this money will be forgotten or lost and never used — known in the industry as breakage.

But here's the thing: Starbucks is not a bank, legally speaking.

With only a few exceptions, Starbucks balance cannot be withdrawn for cash, only coffee,

allowing it to bypass financial regulation and use deposited money however it likes.

It doesn't, for example, have to keep a certain amount of cash ready on hand in case of mass withdrawals.

If it wanted to, Starbucks has all the ingredients necessary to build a fully-fledged currency

or partner with other brands to create a widely-available mobile payment system.

Customers already use Starbucks gift cards as the next best thing to money —

it's the go-to gift to someone you don't know super well but don't want to give cash.

It's sorta liquid — not just because it can be converted to Coffee,

but because you can be reasonably sure anyone will have use for it, making it an almost universal intermediary.

All this is very scary to regular old banks.

The CEO of South Korea's third-largest financial group was quoted calling Starbucks “an unregulated bank, not a mere coffee company”.

It's anyone's guess what Starbucks will do next, or what its ultimate goals are.

In the meantime, though, no one can say it hasn't kept up with the times or managed an incredible comeback.

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