Floating money

Not too long ago, I came across a report stating that as of March 2025, Starbucks held about $1.85 billion in balances from stored-value cards and customer loyalty programs. In essence, these are customer prepayments that have not yet been redeemed. To some extent, they may be viewed as customer deposits.

Back in 2016, Starbucks’ stored-value card liability stood at around $1.17 billion. That figure has since grown by roughly $700 million in nine years, possibly reflecting the robustness of the Starbucks brand and business. If I’m not mistaken, these balances are booked as deferred revenue until the value is redeemed through a transaction.

These stored-value card balances allow Starbucks to enjoy both “float” and “breakage” revenue, or money that customers load onto their cards but either don’t spend or eventually forget. In 2024, Starbucks reportedly earned over $187 million in breakage revenue from company-operated stores, and an additional $20 million from licensed outlets. This breakage income accounted for about 4% of annual profits.

In 2022, breakage revenue was even higher at over $196 million from company stores and more than $18 million from licensed locations. This was said to have represented nearly 14% of the total value held in stored cards. I reckon on average, about 10% of stored value goes unredeemed, and ultimately flows back to Starbucks.

The thing is, customers willingly hand over this money to Starbucks, loading funds into stored-value cards. In doing so, they allow the company to benefit in three ways: through interest income (from float funds deposited or invested), access to interest-free capital (enhancing its liquidity and cash flow), and breakage revenue (from funds that are never used and later forfeited).

Imagine billions of dollars in practically free money, made possible by a simple device called the stored-value card. These cards are held by millions of Starbucks customers not only in the US but around the world. Heck, I used to have one myself.

But it’s not just Starbucks or other retailers that benefit from float. By government fiat, Philippine private entities operating transportation-related payment systems also enjoy similar advantages. And, enabled by public policy, no less.

Starbucks merely illustrates how a successful stored-value model can become a global cash cow. In the Philippines, comparable mechanisms are embedded in Beep cards for MRT and LRT transit systems, and in RFID (Radio-frequency identification) toll tags like Autosweep and Easytrip. These systems were in fact mandated by the government.

The top advantage is clear: access to interest-free capital. Unredeemed balances act like zero-interest loans to Starbucks, to MRT/LRT operators, and to tollway operators that offer them significant liquidity. Some of this money is never used and is eventually recognized as breakage revenue. In addition, operators can invest these unclaimed balances to earn interest income. The float, in many ways, becomes a financial competitive edge.

And this is all legal, of course. And admittedly, convenient to the public. Still, one can’t help but wonder: how much money is floating out there, and whether it is residing in regulatory darkness? Frankly, I am unaware of any existing government regulation specifically governing the use of reloadable stored-value cards and their float.

The pool of float must be mind-boggling. Surely, the stored balances in all Beep cards used by MRT, LRT, and bus commuters, combined with those in tollway RFID tags across Luzon, would amount to hundreds of millions if not billions of pesos. To a certain extent, the holders of this float enjoy the same advantages Starbucks does.

That brings me to ask: Should there be clearer rules on how much of our money can be held, for how long, and by whom? For the sake of transparency and accountability, perhaps there should be periodic public reports. But who will collect the data? Who will verify how much float exists, who holds it, and how much is earned from it? Most important: who ensures that the funds don’t float away?

These funds may be used for operational needs or investments, potentially generating extra income. But where are the safeguards against abuse? After all, to an extent, these are funds held in trust for the public. Surely, there should be clear rules on how this liquidity is mobilized and protected.

By contrast, electronic wallets like GCash and Maya are classified as electronic money (e-money) and are tightly regulated by the Bangko Sentral ng Pilipinas (BSP). E-money issuers are required to maintain liquid assets equal to outstanding balances; place at least 50% of those balances in trust accounts for redemption; and submit periodic reports on balances and redemptions to the BSP. In short, float held by e-wallets is visible to regulators, backed by liquidity, and subject to redemption rules.

In contrast, reloadable cards like those used by Starbucks, Autosweep, Easytrip, and Beep are generally closed-loop instruments, which fall outside BSP’s regulatory scope. These systems are not required to hold liquid assets, set up trust funds, or submit float data to any public body.

This means that reloadable card issuers are holding substantial customer funds with little to no regulatory oversight. Their float is unchecked, yet they continue to reap benefits without mandated transparency, disclosure, or governance.

It may be time to reconsider the rules. In the case of Beep cards and RFID toll tags, their use was government-mandated. It stands to reason that the same government can also set minimum regulatory standards, provided there is a legal basis to do so.

For instance, the adoption of Beep cards for LRT and MRT was part of a Department of Transportation (DoTr)-led modernization program, initiated in 2015, under a concession agreement with a private operator. The system went fully live in October 2015, nearly a decade ago.

As for tollways, the Toll Regulatory Board (TRB) mandated RFID-only toll collection beginning March 2025, but the policy was later suspended by DoTr Secretary Vince Dizon in February 2025 due to concerns over technical readiness and its impact on lower-income motorists.

Given these regulatory gaps, perhaps the BSP can be made to also require from card issuers periodic reporting on total outstanding balances and number of active cards or tags; impose liquidity requirements, such as placing a percentage of float in escrow or trust; enforce escheatment rules, such that unredeemed balances after a dormancy period are turned over to a public fund; and, ensure that float is not commingled with operating capital.

Moving forward, money will become more digital. Other than e-wallets, mobile phone wallets are also coming into play. If stored-value cards and RFID tags are the standard for how we pay for daily public transport, the least we can expect is clarity on how the money flows. Obviously, float is power. But without transparency and safeguards, it becomes a silent power that is unseen, unregulated, and ultimately unaccountable.