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Starbucks Accused of Rigging Payments in App For Nearly $900 Million Gain Over 5 Years by Consumer Watchdog Group (fortune.com) 73

A consumer action group is accusing Starbucks of exploiting customers via its gift card and app payments, forcing them to enter a spending cycle where they will never be able to fully spend the remaining balance of prepaid amounts. From a report: The Washington Consumer Protection Coalition, a self-described "movement of everyday consumers advocating for corporate accountability," is calling on the state attorney general to investigate whether the company's policies violate consumer protection laws.

"Starbucks rigs its payment platform so consumers are encouraged to leave unspent money on their cards and apps," said Chris Carter, campaign manager for the group, in a statement. "A few dollars here and there left on a payment platform may not sound like a lot but it adds up. Over the last five years Starbucks has claimed nearly $900 million in unspent gift card and app money as corporate revenue, boosting corporate profits and inflating executive bonuses."

[...] The group, in a 15-page complaint, alleges the platforms for Starbucks' mobile app and digital payment cards are akin to an "involuntary subscription." Customers can only reload money in $5 increments, with a $10 minimum purchase. That, the group says, prevents customers from ever reaching a zero balance, meaning Starbucks pockets more of the customer's money. The Coalition does concede that customers can reload their accounts in stores for a custom amount of $5 or more, making it easier to hit a zero balance.

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Starbucks Accused of Rigging Payments in App For Nearly $900 Million Gain Over 5 Years by Consumer Watchdog Group

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  • by NomDeAlias ( 10449224 ) on Thursday January 04, 2024 @02:31PM (#64132117)
    Since when has it been $10 minimum to use a gift card? I've received Starbucks cards and made purchases around $6. When the card can't cover the whole purchase I pay the remainder with debit, credit or cash after fully using up the card. What am I missing here?
    • by dmay34 ( 6770232 )

      Yes, you can do this, and most everyone does. But occasionally you don't, and you lose that card with $.50 left on it and you shrug it off.

      $.50 * 100,000,000,000 gift cards adds up pretty quickly.

      • The cards with leftover funds are all available in the app, and you can transfer the small amounts to combine them into a single card. I usually noticed when I got a gift card as a gift, loaded it to the app, and saw a couple cards with $1 or less. So I transfer the small amounts to the single gift card and delete the old ones.

        I don’t see this as a problem. They dont charge me, and I’ve had $.12 on a card for years before transferring it.

        • by Calydor ( 739835 ) on Thursday January 04, 2024 @02:55PM (#64132243)

          And yet for those years Starbucks owned your 12 cents. Multiply by a few million and consider interest.

          Why are you paying for your coffee literally years before you get it?

          • This is the same as the opt-in, opt-out website defaults. In this case, should you choose to opt-out, then you gotta jump through the hoops to get your money back. Everyone knows, not everyone will bother for whatever reason, so Starbucks profits. Starbucks is running the game [youtube.com].

          • And yet for those years Starbucks owned your 12 cents. Multiply by a few million and consider interest.

            Why are you paying for your coffee literally years before you get it?

            This can make good financial sense if you buy the gift cards from a grocery store that offers fuel discounts. A co-worker of mine did this a lot. If you're doing some home renovations buy $500 in gift cards at a grocery store and you get a fat discount on gasoline. Need a new tv or stove? You're going to buy it anyhow so use gift cards and collect the fuel points in the process. Same goes with Starbucks if you stop there daily.

          • And yet Starbucks, to stay within the law, must keep track of those twelve cents forever. I seriously doubt they come out ahead on that.
          • Years? For many people it's months or weeks.

            This seems like a nothingburger to me -- if someone doesn't purchase often, it's rather easy to disable the auto-reload and use the residual in-store.

    • I find it hard to believe this comment was marked insightful. The $10 minimum refers to smallest the amount you can put on the card, not the size of the purchase you can make with the card. The article is talking about how people will get a gift card for, say $20, spend $18.50 (for example), and then not bother to re-use or cash in the remaining amount. If they want to refill the card they need to do so in $5 increments (starting at $10). Basically it's inconvenient to use and lots of people stop using the
      • "Customers can only reload money in $5 increments, with a $10 minimum purchase." Well is says $10 minimum purchase and that you can load the card in $5 increments. Why wouldn't I think that means $10 minimum purchase when it literally says so? It doesn't say minimum reload.
  • To force gift cards to be linked to actual account credit. Plenty of systems already operate this way and it means you never have to care about the gift card itself, scan it in and go pay.

    Or better still, legally mandate a system for paying the small transaction out to the customer. A company will quickly implement on account credit system to avoid the hassle of dealing with unused gift card credit.

    • To force gift cards to be linked to actual account credit. Plenty of systems already operate this way and it means you never have to care about the gift card itself, scan it in and go pay.

      Companies love this idea -require customers to create an account in order to use the gift card they received as a gift.

      Or better still, legally mandate a system for paying the small transaction out to the customer. A company will quickly implement on account credit system to avoid the hassle of dealing with unused gift card credit.

      11 states require that gift card remainders be paid out to the customer as cash back if under a minimum amount (which varies by state). In California, you can receive any amount under $10.00 remaining as cash.

      • Companies love this idea -require customers to create an account in order to use the gift card they received as a gift.

        Consumers love it too. You can see that by the number of people signing up for significantly less useful and more garbage accounts than ones that actually benefit them financially.

  • What benefit is there to the customer to constantly top off a gift card instead of paying cash?

    Anyway, this is very common behavior, and it's always scummy. Microsoft did it with XBLA points back in the day. Nintendo did it, too. Basically every single scummy gacha game does it. I'd love for this practice to be abolished.

    • Re:Benefit? (Score:4, Informative)

      by _xeno_ ( 155264 ) on Thursday January 04, 2024 @02:46PM (#64132191) Homepage Journal

      What benefit is there to the customer to constantly top off a gift card instead of paying cash?

      Loyalty points. Starbucks has some sort of loyalty program where you earn points (which they call "stars" - get it?) which you can redeem for free coffee. But you can only get those points by paying via a gift card you've linked to an account. A lot of places the have some sort of pre-paid balance offer those sort of rewards, to encourage people not to pay in cash.

      It's also worth mentioning that you can zero out a Starbucks gift card, I've done it plenty of times. You just have to pay at the register, rather than via the app. The cashier can 0 out the balance on the card, and then you pay whatever's remaining on your order. (And on that note, please stop buying gift cards. There's nothing more annoying than receiving a "gift" of having to spend at least $25 at Starbucks.)

      • I would be especially unhappy if I received a Charbux gift card as I never patronize them unless I'm at a hotel that only serves it, or I'm somewhere else like an airport that doesn't give you a choice and need caffeine. Why people think overroasted, burnt and bitter coffee is worth drinking is something I'll never understand.
        • The majority of their coffee drinks aren't good but if I'm not paying full price for it, their breakfast foods are decent.

          • Generally, when I need food from a Charbux (I'm diabetic and need to make sure I eat enough carbs, but not too much.) I go for one of their pastries as I've always found them to be quite acceptable. It's a shame, isn't it, that they claim to be a coffee shop, not a pastry shop.
      • by mjwx ( 966435 )

        What benefit is there to the customer to constantly top off a gift card instead of paying cash?

        Loyalty points. Starbucks has some sort of loyalty program where you earn points (which they call "stars" - get it?) which you can redeem for free coffee. But you can only get those points by paying via a gift card you've linked to an account. A lot of places the have some sort of pre-paid balance offer those sort of rewards, to encourage people not to pay in cash.

        It's also worth mentioning that you can zero out a Starbucks gift card, I've done it plenty of times. You just have to pay at the register, rather than via the app. The cashier can 0 out the balance on the card, and then you pay whatever's remaining on your order. (And on that note, please stop buying gift cards. There's nothing more annoying than receiving a "gift" of having to spend at least $25 at Starbucks.)

        This... somehow it's become morally wrong to give someone $25 in an envelope and/or card... like my Gran used to do (except back then it was $5... she was a pensioner and I'm showing my age (*cough*))

        However it's been marketed that gift cards are "personal" where as cash shows "you don't care about them" when cash really says "here, you get what you want". Then again I'm from an old school English/Scottish family where your mum says "I kept the receipt, just in case you didn't like it".

    • What benefit is there to the customer to constantly top off a gift card instead of paying cash?

      Because their rewards program incentivizes use of reloadable cards. You get two stars (their rewards currency) per $1 spent when purchases are charged to a reloadable card, but only one star for other payment methods. (You don't earn stars for topping off a gift card, though they do sometimes offer star bonuses if you reload a certain amount or reload from a particular source, like Paypal or Venmo.)

      I've never run a Starbucks card down to $0 but I assume in person it would act like a split transaction and th

      • . Maybe in the app it's different and requires you to have the full balance?

        Exactly this. If you have $0.12 and want to make a $2 purchase in the app, you have to reload during checkout to use the $0.12 and the minimum reload is $10.

    • by Pascoea ( 968200 )
      Without reading the article (and barely skimming the summary) I would have to assume this isn't a "cash vs gift card" thing, as most people don't use cash thru the app, or to refill a gift card, they would use a credit/debit card. So if the app is using a credit card for each purchase Starbucks pays the swipe fee plus the % interchange fee from the card network for every purchase. If they make you "top up" with a credit card in $10 increments they essentially avoid one swipe fee.
    • Buying your drink before you get there so it's waiting for you.
  • by Anonymous Coward on Thursday January 04, 2024 @02:36PM (#64132141)

    Support your local independent.

    • till they became $3 more expensive for a large Mocha and now SB is cheaper lol. Sorry but after losing my business and sole income to the lock downs now I go where I save $ even if I have to take it in the ass and shop at Walmart which is much cheaper than local grocery stores.

    • Starbucks are the McDonalds of coffee. They offer a range of products that are palatable to most customers and can generally be relied upon to provide a consistent quality in Starbucks-branded coffeeshops around the world.

      In my last office-based job, I was lucky that there was a fantastic independent in the building downstairs. They were card only (no cash payments) so I did feel a bit guilty about supporting them, but they did make really tasty coffee.

      Around the world, independent coffee shops can be great

      • by nightflameauto ( 6607976 ) on Thursday January 04, 2024 @03:32PM (#64132401)

        Starbucks are the McDonalds of coffee. They offer a range of products that are palatable to most customers and can generally be relied upon to provide a consistent quality in Starbucks-branded coffeeshops around the world.

        In my last office-based job, I was lucky that there was a fantastic independent in the building downstairs. They were card only (no cash payments) so I did feel a bit guilty about supporting them, but they did make really tasty coffee.

        Around the world, independent coffee shops can be great or terrible. Except for Italy - I've never had a bad coffee in Italy.

        Starbucks hopes and prays nobody mentions McDonald's and them in the same discussion. McDonald's coffee is one of the few things they get right. And Starbucks tastes like burnt rubber filtered through dirty pantyhose in comparison.

        • by Pascoea ( 968200 )

          And Starbucks tastes like burnt rubber filtered through dirty pantyhose in comparison.

          I was thinking more like burnt ass, filtered through a used jock-strap. But either way your point stands. McD's coffee, especially their "fancy" ones, beat Starbucks hands-down. For "regular" coffee, I prefer BK's to McD's.

          • And Starbucks tastes like burnt rubber filtered through dirty pantyhose in comparison.

            I was thinking more like burnt ass, filtered through a used jock-strap. But either way your point stands. McD's coffee, especially their "fancy" ones, beat Starbucks hands-down. For "regular" coffee, I prefer BK's to McD's.

            I've found BK's is more variable by region. Sometimes even within the same state. For me, Rapid City/Spearfish BK is superior. Smooth, tastes mostly like actual coffee. In Sioux Falls, bitter, not quite right. McD's is consistent across the state, and nearly anywhere else I've had it.

        • McDonald's coffee is one of the few things they get right.

          I take it you're American? While McDonald's coffee is better than Starbucks much of the world call it the second worst coffee on the market. There's nothing "right" about it, it's just made slightly less horribly than Starbuck's.

          • McDonald's coffee is one of the few things they get right.

            I take it you're American? While McDonald's coffee is better than Starbucks much of the world call it the second worst coffee on the market. There's nothing "right" about it, it's just made slightly less horribly than Starbuck's.

            In America I'm considered a coffee snob because I think Starbucks is awful. McDonald's coffee is good compared to the shit we get offered most places. Like the runoff from the drive that most gas stations serve as coffee.

        • McDonald's coffee is a medium roast and Starbucks uses a dark roast. It really comes down to personal preference.

          • McDonald's coffee is a medium roast and Starbucks uses a dark roast. It really comes down to personal preference.

            Uh, no. I use dark roast for most of my coffee at home. Calling Starbucks dark roast is like calling a house fire a weenie roast. Not the same at all.

          • by hawk ( 1151 )

            > and Starbucks uses a dark roast.

            no, not at all.

            Starbucks is *burnt*, a choice they made early on to appear "stronger" to the unsophisticated palate.

            I appreciate coffee, black as Putin's heart.

            Sometimes I even roast it myself.

            I don't go anywhere *near* Starbucks.

      • McDonald's is the McDonald's of coffee. Except their coffee seems like it might be better than Starbucks, so I don't know.

    • I make coffee at home from beans which aren't burned, then I take it to work with me in a klean kanteen coffee thermos and it stays fully hot until I drink it. End result, much better than starfucks.

      Side benefit, not supporting union busting, child slave labor through their partnership with nestle, or virtual slavery through their fake-ass-fair-trade coffee.

    • by mjwx ( 966435 )

      Support your local independent.

      Or learn the fine art of making one yourself. Cafetiere, moka pot, espresso pump, Aeropress, choose your weapon, they can all make great coffee with a tiny bit of practice and patience.

      My theory is that Starbucks and the like rarely sell actual coffee, given their menus tend to be full of other stuff much of which completely non-coffee related. So the people who go there are usually after a sweet drink. Like the explosion of Bubble Tea. Just sugar in liquid form and nothing like a good cup of tea.

  • Nothing enjoyable (Score:3, Insightful)

    by ruddk ( 5153113 ) on Thursday January 04, 2024 @02:42PM (#64132177)

    about the Starbucks experience. Their beans are burnt way too hard. the whole purchasing experience(you know making it fun to spend money) sucks.

  • I always pay cash at Starbucks in the very rare case I go there, this will reinforce that habit for all other places.

    But I know friends and relatives who use cards and apps, so I guess they will get the opportunity to receive a massive 1.91 USD Check after spending at least an hour on a WEB site applying for a piece of the settlement. Great time to be an American.

  • by Motherfucking Shit ( 636021 ) on Thursday January 04, 2024 @02:47PM (#64132197) Journal

    I saw an interesting post a few years ago whose thesis was that Starbucks isn't a coffee company; it's a poorly-regulated bank, masquerading as a gift card company, which happens to own some coffee shops on the side. Someone broke down all of the company's public reports to demonstrate that the vast majority of their income derives from investing the money customers pre-load onto gift cards (whether they ever spend it, or not). The amount of cash that Starbucks holds "on deposit" through gift cards rivals the assets of some of the larger banks. I wish I could find the post again.

  • by bogaboga ( 793279 ) on Thursday January 04, 2024 @02:50PM (#64132211)

    [...] The group, in a 15-page complaint, alleges the platforms for Starbucks' mobile app and digital payment cards are akin to an "involuntary subscription." Customers can only reload money in $5 increments, with a $10 minimum purchase.

    How about having Starbucks pay interest on any balance that cannot be spent on any of their cheapest products?

    For instance, if I have a $2 balance yet their cheapest product costs $2.01, then I should get interest on that $0.01 automatically.

    Sounds logical to me!

    • They just combine purchase and reload into a single operation to cover that case.
    • by mjwx ( 966435 )

      [...] The group, in a 15-page complaint, alleges the platforms for Starbucks' mobile app and digital payment cards are akin to an "involuntary subscription." Customers can only reload money in $5 increments, with a $10 minimum purchase.

      How about having Starbucks pay interest on any balance that cannot be spent on any of their cheapest products?

      For instance, if I have a $2 balance yet their cheapest product costs $2.01, then I should get interest on that $0.01 automatically.

      Sounds logical to me!

      You're thinking logically, not greedily.

      The system is deliberately designed so that it's hard for you to balance your purchase with your available credit so that you will need to buy more credit or *gasp* say you want to pay the remainder by card/cash to the cashier, which will get you some dirty looks.

      If you like coffee, you won't be spending much time in a Starbucks. Most independent coffee shops still work on "buy X and get your next one free" for customer loyalty, then again when you're a regular

  • by buss_error ( 142273 ) on Thursday January 04, 2024 @03:03PM (#64132281) Homepage Journal

    Many states have laws requiring abandoned funds be turned into the State Comptroller's office with the transaction details. Consumers then have typically 5 years to claim the funds, after which it escheats to the state.
    The fines for failing to do so are quite spectacular in some jurisdictions, sometimes up to the greater of 7 times the funds or a quarter of a million dollars per each count, which ever is greater.

    • I was going to say this. But in some states the unclaimed property exists forever until it is claimed - the state can not make any moves on it. Starbucks' only hopeful out is that their terms of service that include special wording for forfeiting unused balances is legally binding. But most likely there is a minimum unclaimed amount which doesn't need to be reported.
      • the unclaimed property exists forever until it is claimed

        I used to work in legal gaming services. At times a winning wager would go unclaimed. This is a problem as most gaming commissions require the establishment fund their on site vault with a percentage of cash to pay (to that time) unclaimed winners. At one establishment, they were required to have over [lots and lots of millions of dollars] in cash in order to meet state law, thus being able to open and accept further wagers.

        Unwisely, one establishment brought that to the attention of State Law Murkers [SIC]

  • by GlennC ( 96879 ) on Thursday January 04, 2024 @03:42PM (#64132419)

    I rarely go to Starbucks. I have been given their gift cards as the occasional birthday or thank-you gift and I only go there to use these cards.

    It's too much of a bother to me to transfer balances to a single card or use the app, so if I don't use all of the balance on a card that I got as a gift, I don't worry about it.

    My thought is that I was given "a cup or two of coffee" and not a set amount of money.

    Are they making a few extra dollars from this? Definitely, but I'm not going to worry about it since if I wasn't given a card I wouldn't have gone there anyway.

    I suspect that I am far from alone in this thought.

  • by King_TJ ( 85913 ) on Thursday January 04, 2024 @03:48PM (#64132439) Journal

    I've run into quite a few apps that play similar games, pretending you can only reload their online balance in increments of $5 or whatnot.

    If you're going to go after Starbucks for this one, I think you may as well think bigger and push for some kind of change to banking regulations prohibiting companies from managing their "gift card" balances this way in apps?

    Also, FWIW? I've solved this problem before at Starbucks by going in and asking them to apply my balance on the app in my phone first, followed by paying the remainder with cash or a debit/credit card of my choosing.

    • This is why this lawsuit won't go anywhere. There's no legal requirement that the app work the way the plaintiffs want it to work, the plaintiffs agreed to terms that said how it would work, and they could avoid the loss they're claiming by going to the counter and paying there. The judge is going to toss the suit on the grounds the plaintiffs haven't stated a claim that the court could remedy.

      I think the app should work the way the plaintiffs say it should, and technically there's no reason it couldn't. It

  • Gift card issuers used to expire the cards and "sweep" the breakage into their pockets.
    That's been explicitly illegal for years.
    This is an almost twist on the practice.

  • by peterww ( 6558522 ) on Thursday January 04, 2024 @05:11PM (#64132709)

    All the transit cards I've used with auto-refill payments on can enter the same situation, where there's not enough left on the card to actually take a trip, and you can't tell the card to refill only N number of trips

  • The silver Nol metro card has a minimum-usable balance of 7 AED and you can only buy in 10 AED increments.

    The gold Nol card is even worse. It requires you to have 15 AED and can only buy in 25 AED incrememnts.

    All of the profit goes to the government.

  • Recently I organised a farewell for a colleague. This included a collection. There was no time to buy a gift (it was at short notice). Instead of buying a gift voucher, I put cash into the farewell card.

    We need to bypass the queasyness we have with cash. We treat it as something impure.

    Cash is the ultimate gift voucher - readily convertible, never expires and can be loaded into a bank account and earn interest. Also, recipients are less likely to misplace it ðYS

  • The gift that keeps on taking. Don't ever buy anybody an Alexa as a "gift".

  • by slarabee ( 184347 ) on Thursday January 04, 2024 @10:10PM (#64133299)

    I am not an accountant. But I am married to one. One who does not work for Starbucks, but does revenue recognition at the corporate level.

    Consumer buys a gift card. That money is not yet revenue as no goods have actually been provided -- just a promise that goods will be provided in the future when the card is redeemed. The money the company got for that card is classified as deferred revenue. Consumer uses the card. Consumer gets their goods. The company accountantss then get to move money from the deferred revenue column to the recognized revenue column.

    All is well and good until time passes. Years later and the company has a metric boatload of deferred revenue on the books. There is no reason to keep the oldest as deferred. Especially not when you can crunch the data, create some custom actuary style tables and state with confidence (and here I start making nubmers up as they will vary business by business) that after five years only 1.3% of unspent gift card value be used in the next five years. And in the history of the company, only .000008% of gift card value has been used after ten years. You know what, let's move card value older than five years from deferred to recognized revenue.

    Is all corporate ledger shuffling. Starbuck's moving their older deferred revenue into recognized has zero affect on those actual cards. They are still valid. The consumer can still use them. Is a good thing from the government's point of view that the money is not still sitting as deferred. Under the accrual accounting system that almost all corporations use, the revenue is not taxable until it becomes recognized.

    Anyhow, this new group and the news articles their press release have inspired is part of an ongoing campaign. About a year ago, a union backed group The Strategic Organizing Center [thesoc.org] started agitating about gift cards with a focus on Starbucks. Probably because Starbuck's has one of the most widely adopted card programs, and thus the largest revenue numbers could be used. They got some press. The press died down. So it looks like a month ago the same folks decided to create a hollow front organization: Washington Consumer Protection Organization [waconsumerprotection.org] and issued a new press release on the same topic through them. Zero actual individual consumers seem to be associated with the group. Generic website. Zero human names. Pile of fresh social media accounts. Looks like a Potemkin village of a grassroots group.

    This ask of this front group tells the true story.

    They just want the money that woud be shuffled from deferred to recognized to instead be confiscated by the state.

  • *$ coffee was great prior to about the mid-90s when they launched their expansion plans and their coffee shops began to look like airport gift shops.

    The only thing *$ is good for anymore are flavored drinks like pumpkin spice lattes and similar crap

    Want a decent coffee; real coffee? Try independent roasters and coffee shops. They almost always serve WAY better coffee. And, they usually treat their staff better, too, which means a better in-store experience.

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