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Starbucks currently has US$1.6b in unused credit sitting on its gift cards, more than 85% of bank in the US. This is essentially an interest free loan from its customers. We investigate the big business that is unused gift card credit.

The Bank of You. You may not realise it, but you are acting as a lender to some of the biggest corporations in the world. Check your wallet. Any gift cards leftover from Christmas?

Buying and holding a gift card is essentially the equivalent of an upfront loan to the store issuing the gift card with no interest paid to you. Sure, there are transaction costs incurred by the stores to sell cards, but these flow through to the providers. 

Starbucks has mastered this game better than most. It’s estimated that US$1.6b currently sits on their gift cards. 85% of banks in the US have assets under US$1.6b.

By offering specials perks and offers for prepaid cardholders, 41% of their user base completes purchases by this method. That’s US$1.6b Starbucks can use today and payout at cost price over years in small increments. On top of that, around 10% of gift card credit is never used. This is known as breakage. In 2020, $SBUX earned US$130m in breakage income. 

It’s a topic earning attention from the Federal Reserve. In a presentation on the future of payments, the Fed raised the issue with converting very liquid cash to gift card money.
While the crypto crew may argue otherwise, largely you can have faith that a $20 note will always be worth its face value and exchanged for a range of goods, $20 on a gift card can only be exchanged for a few goods and services and worth nothing if the company goes broke. 

Paypal holds US$22.5b in customer funds for example which are not subject to the regular insurance that proper financial institutions have. Banking with a US bank like JP Morgan will leave you eligible for FDIC Insurance, US$500,000 worth of cover per account by the government should the bank go broke. Stake is covered by FDIC insurance. Paypal is not. 

We do not imply or expect the integrity of Paypal to ever falter but the Federal Reserve reminds people of the immediate value and security loss in converting cash.

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Stakeshop Pty Ltd, trading as Stake, ACN 610105505, is an authorised representative (Authorised Representative No. 1241398) of Sanlam Private Wealth Pty Ltd (Australian Financial Services Licence No. 337927) ('Sanlam') and an authorised representative (Authorised Representative No. 1241398) of Airwallex Pty Ltd (Australian Financial Services Licence No. 487221) ('Airwallex'). Stake is not authorised by Airwallex under Airwallex’s AFSL to arrange for clients to be issued with securities as Airwallex is not authorised under its AFSL for this purpose. Stake is not authorised by Sanlam under Sanlam’s AFSL to arrange for clients to be issued with a non-cash payment facility as Sanlam is not authorised under its AFSL for this purpose. Stake SMSF Pty Ltd (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. Stakeshop Pty Ltd will also run marketing and promotions to you under. For more information about SMSFs, see our SMSF Risks page.The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers  before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

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