Unused Gift Cards are Great Business

Dec 14, 2021

Did you know that Starbucks has $1.6 billion loaded onto Starbucks cards? And every year, many of us forget that we have a few cents or even a few dollars left on our cards. Starbucks knows this, and since they have so many transactions, can accurately predict just how much of that will go unredeemed every year. Since you can't redeem your Starbucks balance for cash (only food, drink, etc.), Starbucks can recognize some of that unused balance as revenue every year. That unused balance write-off is called breakage.

In 2021, Starbucks recognized $160 million in breakage revenue – nearly all of it pure profit. Now Starbucks has unusually high breakage because 1) the relatively low price of its products and 2) the ubiquity of Starbucks Cards as a payment mechanism and gift (you might get one this holiday season from a family member or coworker if you're lucky!).

The gift card balance is even more impressive, given that Starbucks customers are essentially giving the company an interest free loan of $1.2 billion to Starbucks. Well, technically, it writes off 10% as breakage every year, so the interest is -10%.

Other companies aren't as lucky as Starbucks but still get short-term loans from their consumers for free. Any money that sits in a Venmo or PayPal account can be invested or borrowed against in the hours or days before it's redeemed. Businesses that pay creators like Roblox also profit off of this float.

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