Floating money

Not too long ago, I came across a report stating that as of March 2025, Starbucks held about $1.85 billion in balances from stored-value cards and customer loyalty programs. In essence, these are customer prepayments that have not yet been redeemed. To some extent, they may be viewed as customer deposits.

- MARVIN TORT

Back in 2016, Starbucks’ stored-value card liability stood at around $1.17 billion. That figure has since grown by roughly $700 million in nine years, possibly reflecting the robustness of the Starbucks brand and business. If I’m not mistaken, these balances are booked as deferred revenue until the value is redeemed through a transaction.

These stored-value card balances allow Starbucks to enjoy both “float” and “breakage” revenue, or money that customers load onto their cards but either don’t spend or eventually forget. In 2024, Starbucks reportedly earned over $187 million in breakage revenue from company-operated stores, and an additional $20 million from licensed outlets. This breakage income accounted for about 4% of annual profits.

In 2022, breakage revenue was even higher at over $196 million from company stores and more than $18 million from licensed locations. This was said to have represented nearly 14% of the total value held in stored cards. I reckon on average, about 10% of stored value goes unredeemed, and ultimately flows back to Starbucks.

The thing is, customers willingly hand over this money to Starbucks, loading funds into stored-value cards. In doing so, they allow the company to benefit in three ways: through interest income (from float funds deposited or invested), access to interest-free capital (enhancing its liquidity and cash flow), and breakage revenue (from funds that are never used and later forfeited).

Imagine billions of dollars in practically free money, made possible by a simple device called the stored-value card. These cards are held by millions of Starbucks customers not only in the US but around the world. Heck, I used to have one myself.

But it’s not just Starbucks or other retailers that benefit from float. By government fiat, Philippine private entities operating transportation-related payment systems also enjoy similar advantages. And, enabled by public policy, no less.