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Comment by AnotherGoodName | Hacker News Reader

Ooooh do the one where hitting ‘payment’ on the app buys $25 of store credit by default rather than just paying and deducts the 9.64 from that credit.

Then when you spend down the credit to $2 any attempt to buy something that costs more refills the credit.

Starbucks app btw. You have to specifically pay with card on the payment screen to avoid buying credit and paying as above.

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This is called a float business in finance. Starbucks has more than a billion dollars in unredeemed balances, and they make ~$200 million per year in interest with this cash. They're basically a bank with a coffee shop side hustle.

How are they getting 20% on a deposit that presumably could be called up at any time, and how can I get in on it when the stupid "High Yield" accounts I can find top out at around 4%?

large businesses have large cash borrowing needs. if they borrow for free from their customers, it reduces the other borrowing they would need to do, so the rate to use is not what interest rate is available to you, but rather how much interest that Starbucks would need to pay for loans that size. Furthermore, whereas dividends are taxed twice (once as profit for the company and again as regular income to the shareholder), interest is a tax deduction to the company (which decreases their taxable profits) and for a percentage of debtholders that interest income is also taxed advantageously.

probably doesn't come up to 20% (unless Starbucks is in junk bond territory) but it's higher than the investment rate of 4% that you're quoting.

They may buy bonds or something like that.

For a 20% return in a year?

The numbers given have to be incorrect.

Oh yeah I wasn't taking OPs number at face value

probably 2%, not 20%.

Yielding a yearly 20%?

If anyone knows of _any_ investment yielding a yearly 20% reliably, I'd certainly be interested. If Starbucks figured that out, I don't know why they're bothering making coffee.

Do they include expiring credit in that figure?

Most of the time they have a buried clause that says that you forfeit all of your credit or get charged an inactivity fee if there have been no account transactions or no credit added for 12 or 18 months. Same reason why you should never buy gift cards.

This may apply in the US but not everywhere. In Canada it is illegal to expire and take back money on gift cards.

So they can keep collecting interest on it forever, but they have to keep the balance for you indefinitely.

The U.S. as well.

By law, gift cards never expire.

Unfortunately, I have several gift cards I didn't use before the store expired.

I’ve seen gift cards work around this by charging a “monthly maintenance fee” after a year of inactivity.

A quick Google suggests in 2016 it was $1.17B, and earned $21M, or 1.79%.

(via https://www.amminvest.com/starbucks-sbux-float/ )

I mean I’d love to have a free $21M a year, but if you’re already Starbucks then somehow it feels like pocket change compared to your actual earnings and would question if it was worth the effort.

But they also have over a billion cash at hand. I imagine at that scale and customers being private, the amount is pretty stable and Starbucks can just do whatever with this since it's extremely unlikely that customers demand all their money back at once.

Sorry, can they (customers) demand it back?

I mean, once Starbucks have it, then the customers get it back via product (that has a margin included), or just leave it forever (free money!)

I have a firm "No vouchers" rule because of this, the vouchers in my part of the world inexplicably "expire" if not used within a certain amount of time, cannot be redeemed for cash, and will not be honoured if the business goes belly up

According the laws here they have to. Doesn't mean they won't make it difficult. And it needs to be in a separate account and business (to avoid it being drawn into a bankruptcy). Not that this has ever stopped businesses from abusing it anyway. I doubt this voucher option is available in the Dutch app because of this but I didn't bother to check.

That was actually a bad year, as that "free" $21 million represented a loss of about $30 million. $1.17 billion on Jan 1st 2016 is equivalent to $1.22 billion a year later due to inflation. So they would have had to generate $50 million just to break even in actual buying power terms.

Is that based on not investing that $21 million or am I misreading something about how that money was or wasn't used?

No, they're saying that inflation that year was 4.3% ($1.22B / $1.17B¹) If you're only making 1.8% in investing it, you're not beating inflation, and your money, though nominally growing (number is going up), is decreasing in its real value (amount of stuff the money gets is going down).

(¹I think this is too high; BLS thinks inflation over 2016 was 2.5%. But their core point still stands: interest earned was below inflation.)

I used the CPI

If they're intentionally causing the customer to have an unspendable balance, knowing that it's making them $200m/yr, how is that not fraud (or some kind of crime)? I'd expect atleast CA would do something about it.

Customers agree to this when they accept the terms of the app. This is also how a debit or savings account at any bank works. Both businesses have sophisticated models to determine how and when customers are likely to make withdrawals, and based on these models they lend out the money based on acceptable risk criteria.

Even if it is in the T&Cs, this one feels like it wouldn’t actually hold up?

Expecting people to read those for most simple sign ups is already a high baseline, and Starbucks is not technically a banks and offers no consumer protections (FSCS or other), so that feels knowingly misleading, even if the total balances held are small per customer.

IANAL, of course.

Toronto Parking Authority is guilty of this. If you pay at a terminal on the street, then you're charged the exact amount needed for your parking session. If you pay using the mobile app, then it charges your credit card in increments of $20, requires your mobile phone number as an account identifier, and keeps track of your remaining monetary balance.

The only saving grace here is that it goes to the municipality at least

This is how a lot of transit cards work, unfortunately.

Most of those (used to) work offline too, as long as there was money on the card. Not something an online payment system or app needs to deal with.

if i recall, in singapore, the transit card costs are refundable.

I think that's the only place i've seen it refundable.

London oyster cards also offer a refund of your pay as you go balance.

I suspect most people just use contactless nowadays, Especially infrequent visitors.

> Especially infrequent visitors

I don't know a single resident who uses oyster (maybe kids? Dunno, I don't have kids in my social circle), infrequent visitors are actually the only ones I've seen using oyster and that's because they thought that was the only way to use transport

Many, many people use Oyster cards for monthly or annual passes.

They're refundable in Japan too.

I've been trapped for 15 years!

At minimum, the default should be "pay exact amount"

Einstein's Bagels does this asinine shit, too, like I want to bank with a fucking mediocre bagel joint.

That is wild

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