Starbucks uses Embedded Finance to improve customer experience and increase retention

Starbucks, an American multinational chain of coffee shops and roastery reserves, has been dipping its toes into fintech for some time now, leveraging embedded finance to create superior customer experiences and build loyalty, according to a new analysis from fintech-focused research firm WhiteSight.

The report, which delves into the firm’s fintech moves, reveals that Starbucks has embraced a range of embedded financial and lifestyle products to expand customer engagement. These products range from mobile payments, stored value cards, gift cards and rewards programs, to wearable payments, bitcoin payments and digital collectibles.

According to the report, Starbucks’ fintech moves have centered around strengthening its rewards system and loyalty program. By leveraging embedded financial products, Starbucks has maximized personalization, driven brand growth and outperformed its competitors and banks in deepening customer relationships, it said.

Starbucks’ fintech journey

Starbucks formally began its fintech journey back in 2001 with the introduction of the Starbucks Card, a program that allows users to pre-load money into an account for later purchases. This was followed a few years later by the launch of the Starbucks Card rewards program.

In 2009, Starbucks consolidated the two concepts to form My Starbucks Rewards and launched, in tandem, the Starbucks Card Mobile App. The Starbucks Card Mobile App is a mobile payment platform that allows users to load money into their accounts, pay for purchases with their smartphones, check balances and view transactions. This new app was aimed at improving usability and user experience, the report notes. It gave the company the necessary data to understand customer preferences and behavior, and provide them with personalized rewards, and thus retention.

From then until 2015, Starbucks focused on expanding its digital payment options and achieving a more frictionless payment experience. This materialized with partnerships with banks, payment networks and fintech companies to enable contactless, mobile and online payments, and build customer loyalty.

Starbucks’ Crypto Moves

2016 was the year Starbucks began dipping its toes into cryptocurrencies and blockchain, announcing in December that users of its mobile app could now use IPayYou to make bitcoin payments.

In 2019, the company formally demonstrated its commitment to embracing blockchain, unveiling a partnership with Microsoft to develop a blockchain-based supply chain tracking system and mobile app for customers to track the supply chain journey of the beans they buy and the coffee they drink. This was followed a few months later by a partnership with Bakkt, a crypto trading platform, to accept crypto payments.

2022 marked the start of Starbucks’ journey into the metaverse. Unveiled in September, Starbucks Odyssey aims to offer a new experience powered by Web3 technology, allowing Starbucks Rewards members and employees to earn and purchase digital collectibles and use them to unlock access to new benefits and experiences.

Launched in beta in December, Starbucks Odyssey allowed a small group of waitlist members in the US to participate in a series of interactive activities and earn non-fungible tokens (NFTs).

Starbucks’ fintech moves, Source: Whitesight, December 2022

Rewards and loyalty programs to increase retention

Starbucks Odyssey is an extension of Starbucks Rewards and seeks to help the company connect with its customers in new ways, the firm said in a statement, opening access to immersive experiences both physically and digitally.

According to Starbucks Q4 2022 financial results, the Starbucks Rewards program had 28.7 million members in the US in November 2022, up 16% year-over-year (YoY). Starbucks Rewards members drove 55% of the company’s U.S. operating revenue for the most recent quarter ended in October, officials said.

Research has shown that loyalty and rewards programs help organizations retain their most valuable customers and drive retention.

A Nielsen study found that 84% of customers were more willing to choose a retailer that runs a loyalty program. A separate study by Wise Marketer and Maritz Motivation found that 82% of consumers who participated in points-based programs were more likely to buy more often from those companies. 52% agreed that the chance to earn points influenced them to ignore offers from competing brands.

Featured image credit from Freepik