What's brewing: Inside the Starbucks-Bakkt partnership

What’s crypto got to do with coffee?

It’s one of the first questions that surfaced last August when Starbucks announced it had partnered with Bakkt – the much-awaited crypto exchange and custodian geared towards institutions. The only explanation they gave at the time was that Starbucks, as the flagship retailer, would "play a pivotal role in developing practical, trusted and regulated applications" for Bakkt's products in-store. But they've been tight-lipped about what this really means or what's in it for the coffee maker.

Now, six months later, sources close to the deal have shared further details about this admittedly unusual collaboration; what’s in it for each party and the nature of the deal.

Here’s what we know.

What’s in a cup of coffee

It’s worth beginning with the least obvious part of this partnership – what’s in it for Starbucks?

There’s no denying that Starbucks is one of the most recognisable brands in the world. So given the coffee chain is not known for charitably lending its logo, where it lends its name, it naturally warrants a hefty incentive.

“There’s high value from having a brand of this level,” a payment expert close to the deal told The Block – especially for relatively “new” names like Bakkt who benefit from the coffee heavy-weight's support.

In return, the coffee chain has secured a “mutually beneficial” agreement – read: generous equity deal. The percentage of Bakkt shares granted to Starbucks is confidential, but sources suggest it is disproportionately high given they did not actually make a cash investment.

There’s also likely to be mutual marketing perks. This makes sense given that a large portion of Starbucks' upfront investment in Bakkt has come from their marketing budget, sources noted. Perhaps, at the very least, we can expect Bakkt to install a branded latte dispenser in every boardroom...

In return, Starbucks has agreed to allow coffee-lovers to pay in-store using Bakkt’s software, which will instantly transfer their crypto into fiat. Although Starbucks' final books will remain clear of digital assets, it’s a serious testament to their faith in Bakkt; marking Starbucks' first foray into the crypto world.

Sources also confirmed that only customers in the US will initially be able to use Bakkt's bitcoin-to-USD services to pay for coffee. However, should they expand the service internationally, the additional benefit to Starbucks would mean skipping FX fees, as Bakkt could switch overseas customers’ crypto directly into dollars.

Small promises

True to their word in last year's press release, Starbucks is having a big say on how the customer interface and in-store transaction will look. It's likely to involve a crypto-to-fiat card, operated by Bakkt, which can be topped up via Starbucks' mobile app. 

“[They are] determining what the customer experience on Starbucks’ end will be. And what’s acceptable,” a source close to the operation said.

It's an area Starbucks has some expertise in given its own popular rewards app with nearly 20 million active users.

"Bakkt has to launch their platform first; they have to be able to store and hold crypto."

In short, it seems that the deal is very much dependent on Starbuck' own standards and operational frameworks, one source suggested.

“In many ways, there are limits to what Starbucks can do with partnerships because there are limits to what customers can expect."

Crypto in store?

Finally, crypto could have a bright future at the coffee giant, sources noted. Indeed, Starbucks is likely to eventually accept crypto directly in as little as 18 months.

But “it could be much longer”, sources warned, citing the continuing regulatory flux as the main hindrance.

For now, the “StarBakkts” partnership suggests Bakkt is holding true to its promise of appealing to major institutions and fuelling adopting – even at a high price.