On Monday, March 4, The Block published an article discussing Starbucks equity share in Bakkt. Bakkt is a US cryptocurrency platform company owned by Intercontinental Exchange (the parent company of the New York Stock Exchange). News of the partnership between the Starbucks and Bakkt began percolating back in August of last year when Intercontinental made the announcement that they would soon be forming Bakkt and that Starbucks would be the “Flagship Retailer”. While we are still waiting on additional details about what this partnership will mean for consumers, it appears that Starbucks will not be accepting Bitcoin at the point of sale any time soon. Instead, Bakkt will most likely be working as a middleman, converting consumers Bitcoin or other cryptocurrency into fiat currency for use in the Starbucks app.
Given the success of Starbucks prepaid program and how integrated it is into the Starbucks checkout experience, I believe that this is a natural place for the Bakkt partnership to start. Currently consumers are required to load funds onto a prepaid account in order to pay via the Starbucks app either online or in store. This is frequently done via automatic preload charges when balances reach below a pre-determined limit. Allowing consumers to reload their prepaid balances with Bitcoin or other cryptocurrencies reduces the stress on the blockchain by batching transactions. This makes accepting cryptocurrency much more practical as one of the main issues with accepting cryptocurrency is the time it takes to write to the blockchain limits its effectiveness in high volume environments. Also, batching transactions mitigates the tax reporting burden on the consumer.
The benefits of this partnership to Starbucks are twofold. First, by being the first mover in adopting this new technology Starbucks is positioning itself as the forward-thinking, exciting brand. Secondly, there are potential financial benefits if Bakkt is able to offer a favorable exchange rate that is competitive to current credit and debit interchange rates.
It’s too early to say if Starbucks or any retailer for that matter would ever consider accepting cryptocurrency directly, but with this partnership Starbucks is starting to dip its toes in the cryptocurrency pool. Depending on how this experiment works out maybe someday it will dive in all the way. One thing that is certain is that it will be very interesting to watch how this unfolds.
Overview by Brian Misasi, CFO at Mercator Advisory Group