) is perhaps the first name that comes to mind when you're
thinking of getting a cup of coffee. The brand's position in the
American marketplace is secure. But is the coffee icon grabbing a
share of your bank's business? Can it easily perform a big chunk
of those functions?
Power of Pre-paid Cards
In many senses it already has. The era of going down to your
local bank is long gone, with the tremendous growth in online
transactions. You are probably more likely to go to Starbucks on
a regular basis.
The reason why banking functions come into the picture are the
coffee chain's pre-paid cards. These loyalty cards mimic savings
accounts, (redeemable only at Starbucks outlets of course). This
already accounts for two banking operations, saving money and
But these are more than gift cards. You can use your own card
to buy someone else a Starbucks card. This covers an even more
crucial function: money transfers. This is because by doing so,
you are passing on your savings while Starbucks acts as an
Increasing the Value Proposition
The money involved may not seem significant when you take the
larger banking picture into consideration. But it is not a sum to
be trifled with. More than thirty percent of transactions at
Starbucks stores in the U.S involve the use of the chain's
Taken together with data from the most recent earnings
release, this implies that transactions using cards make up $2.5
billion of the company's domestic sales. Starbucks could add even
greater value to card transactions by allowing customers to use
them at its other franchises such as La Boulange or Tazo Tea.
It could even offer a method of redeeming loyalty card value
in cash, which in effect is a withdrawal. Its 11,000 stores in
the U.S. could pose a serious challenge to conventional financial
services using the power of a high number of interactions
Challenges for Traditional Banking
In a recent article in the
Harvard Business Review,
senior consultants from
) claim that players from outside the industry are eating into
the business of banks through innovations such as Starbucks'
loyalty cards. These include such industry giants like
Wal-Mart Stores Inc.
) and PayPal.
Google Wallet and PayPal can be used to both store and spend
money. Using Google Wallet, you can simply email your cash via
Gmail. Meanwhile, Wal-Mart has partnered with American Express to
This is a pre-paid debit card which allows you to make ATM
withdrawals, charging $2 for each transaction. In fact, the first
withdrawal made every month carries no charge. The low fees
charged for the card is because it is structured in a manner
which allows Wal-Mart and
American Express Company
) to avoid bank interchange fees.
A Digital Future
Banks need to embrace digital methods in a big way in order to
stop non-industry players from increasing their influence.
Leveraging their large reserves of transaction data they can
easily leverage the buying behavior of customers. Several banks
across the world are already attempting to do so.
In fact, closer home,
Bank of America Corp.
) is examining transaction data closely to provide cash back
services to customers for frequently used merchants. This process
has been used to return $17 million to customers.
Going digital in a proactive manner seems to be the way
forward for banks. On a different note, Starbucks is the
undisputed leader of the coffee business and a great investment
option. The forward price-to-earnings ratio for the current
financial year is 27.47 and the stock has expected earnings
growth of 20.90.
Given that Starbucks has a Zacks Rank #3 (Hold), it would be
wise to remain invested. You can only expect more from this
iconic brand which is changing the rules of the game.
ACCENTURE PLC (ACN): Free Stock Analysis
AMER EXPRESS CO (AXP): Free Stock Analysis
BANK OF AMER CP (BAC): Free Stock Analysis
GOOGLE INC-CL A (GOOG): Free Stock Analysis
STARBUCKS CORP (SBUX): Free Stock Analysis
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