Latest / Fintech Conversations with Fexingo: Banking, Payments, and Financial Software Companies / How Fintechs Use Stored Value for Embedded Loyalty
Transcript
- Lucas: So there's this number I keep coming back to — Starbucks has over 30 million active members in its rewards program, and at any given point, those customers are collectively holding something like one point six billion dollars in stored value on the app. Luna: One point six billion — that's basically an interest-free loan from customers. Lucas: Exactly. And it's not just Starbucks. Walmart, Amazon, even your local gas station chain — they're all realizing that stored value isn't just a payment mechanism, it's a loyalty engine that directly impacts cash flow and repeat behavior. Luna: So today we're talking about how fintechs are helping merchants build stored-value wallets that double as loyalty programs. The angle being: why let a points program sit on top of payments when you can embed the incentive directly into the balance? Lucas: Right. And we've got a really concrete case from a regional gas station chain in the Midwest — I'll get to that in a minute. But first, let's define stored value in this context. It's essentially prepaid money — you load funds into a digital wallet tied to a specific merchant, then spend it there. The merchant gets the float, the customer gets convenience and often a bonus. Luna: And the loyalty piece comes from the fact that you're psychologically committed once you've loaded money. You're not going to leave fifty dollars sitting in a wallet you never use. Lucas: That's the stickiness. Data from a 2025 study by the Federal Reserve Bank of Boston showed that consumers who use merchant-specific stored-value wallets spend about 23 percent more per year at that merchant compared to non-wallet users. And crucially, they're less likely to defect to a competitor because switching costs are real — they'd lose the balance or have to jump through hoops to transfer it. Luna: So the fintech play here is: companies like Marqeta, Galileo, and Stripe provide the infrastructure — the APIs to issue virtual cards, manage balances, handle KYC — and then merchants layer loyalty mechanics on top. Deposit fifty dollars, get a five dollar bonus. Or earn one percent back in wallet credit for every purchase. Lucas: Exactly. And what's interesting is how this differs from traditional points programs. With airline miles or credit card points, the liability sits on the issuer's balance sheet as a deferred cost. With stored value, the merchant holds the cash immediately. The liability is the obligation to provide goods or services later, but in practice, many merchants benefit from breakage — customers who never fully spend their balance. Luna: Breakage is that portion of stored value that goes unclaimed — lost cards, forgotten accounts, small balances that are too tiny to bother with. It's a huge profit driver for gift card programs. Starbucks actually disclosed in its 2025 annual report that breakage revenue was around one hundred and forty million dollars, which is about three percent of their operating income. Lucas: And that's the part some regulators are starting to scrutinize. If breakage becomes too large, there are unclaimed property laws that require companies to escheat those funds to the state. But for now, most merchants structure their stored-value terms so that breakage is legitimate — non-expiring balances, but with dormancy fees or account closure after prolonged inactivity. Luna: Let's talk about the gas station case you mentioned. Who was it and what happened? Lucas: Sure. There's a chain called Ricker's — they operate about sixty convenience stores and gas stations in Indiana and Illinois. In early 2024, they launched a stored-value wallet called Ricker's Rewards, built on top of a fintech platform from a company called Paytronix. The mechanics: customers load at least twenty dollars into the app, and they get an immediate ten percent bonus. Every dollar they spend at the pump or in-store earns additional points that convert back into wallet credit. Luna: So it's a hybrid — stored value plus points. But the key is that the points automatically convert to spendable balance, not a separate currency. Lucas: Right. And the results after eighteen months: average transaction frequency among wallet users increased by 40 percent compared to non-users. The average loaded balance per active user stabilized around thirty-five dollars. And here's the kicker — Ricker's CFO told a payments conference that float income from the stored balances now covers the cost of the bonus program entirely. The program is self-funding. Luna: That's the kind of unit economics that gets CFOs excited. You're essentially getting an interest-free loan from customers, and the cost of acquiring that loan is just the bonus you give — which is funded by the interest you earn on the cash. Lucas: Now, this isn't new in principle — prepaid phone cards and gift cards have been around for decades. What's new is the fintech layer that makes it real-time, personalized, and connected to broader loyalty data. Modern stored-value wallets can track individual purchase behavior and trigger personalized bonuses — 'Hey, you haven't bought coffee in a week, here's a free one if you reload twenty dollars.' Luna: So it's a combination of convenience and behavioral nudges. And the infrastructure has gotten cheap enough that even mid-sized merchants can do it. A decade ago, building a custom wallet app would cost seven figures and take a year. Now you can get an MVP from a white-label provider for maybe fifty thousand dollars and launch in three months. Lucas: That's democratizing access to what used to be a Starbucks or Walmart game. And speaking of Walmart — their Walmart MoneyCard is actually a stored-value debit card that also functions as a loyalty program. Users get up to three percent cash back on purchases, but the cash back goes straight into the card balance. Walmart reported in its 2025 annual filing that MoneyCard holders spend about 25 percent more per year than non-card customers. Luna: So the thesis is clear: stored value drives higher lifetime value. But there are risks. The biggest one is regulatory. If a merchant holds large sums of customer money and doesn't properly safeguard it, they could face enforcement under state money transmitter laws. And if they ever go bankrupt, those stored balances become unsecured claims — customers could lose everything. Lucas: That's why most fintech platforms now require merchants to hold customer funds in a pooled custodial account at a regulated bank, often with Federal Deposit Insurance Corporation pass-through insurance. So each customer's balance is insured up to two hundred and fifty thousand dollars, just like a regular bank account. That mitigates the bankruptcy risk. Luna: And there's also the unclaimed property angle I mentioned. If a merchant has a million dollars in dormant balances — say, accounts that haven't been touched in three years — many states require that money to be turned over. That can eat into the breakage profit. Lucas: Yeah. So the smart operators are actively managing that — they'll send reminders, or they'll structure the program so that balances don't go dormant. For example, if you have auto-reload enabled, your account is always active. Some merchants even allow you to donate your small leftover balance to charity, which avoids escheatment and builds goodwill. Luna: Let me ask you this — with all the buzz around crypto and stablecoins, do you see stored value moving onto blockchain? Like, a merchant issuing its own stablecoin that you can load and spend? Lucas: There are a few experiments. In 2025, a fast-food chain in Brazil called Habib's launched a tokenized loyalty token on a private blockchain — you load reais, you get tokens that can be spent across their network. But honestly, for most merchants, the complexity and volatility don't justify it. A simple database-backed wallet with a good API is cheaper and more predictable. Luna: So the real action is in the data layer — using the stored-value data to understand customer behavior and personalize offers in real time. Lucas: Exactly. And we're starting to see this merge with embedded finance more broadly. For instance, some fintechs are now offering 'stored value as a service' — a combined wallet plus lending product. You load a hundred dollars, you get access to a small credit line based on your load history. It's a way to graduate customers from prepaid to credit. Luna: That's fascinating. But before we go further — I know we talked about how these shows are possible because of listener support. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it makes a real difference. If these conversations are useful for what you're building or running, that's where you can help keep them ad-free. Truly appreciate it. Luna: Alright, back to stored value. One trend I'm watching is the convergence of stored-value wallets with bill pay. Some fintechs are letting you load money into a wallet that then automatically pays your rent, utilities, or insurance — with a small reward for doing so. It's basically a stored-value account that doubles as a budgeting tool. Lucas: Right. There's a startup called Fold that does something similar with Bitcoin rewards, but the mainstream version is more like 'deposit your paycheck into this wallet, pay your bills from it, and get cash back on all of them.' That's a stored-value relationship with the merchant — except here the 'merchant' is the biller, and the wallet provider is the fintech. Luna: And the billers benefit because they get paid faster and with lower transaction costs. No more card interchange fees if the payment comes from a wallet debit. Lucas: Exactly. The economics are compelling. I think we'll see more regional banks and credit unions offering stored-value loyalty wallets to their small business customers — basically, a white-label wallet that the local coffee shop or dry cleaner can offer, with the bank handling the regulatory compliance and the fintech providing the technology. Luna: So the ultimate vision is: every merchant you interact with has its own stored-value wallet, and those wallets are interoperable through some kind of open banking API. You could move value from your Starbucks wallet to your Ricker's wallet — though that's a long way off. Lucas: It is. But even without interoperability, the current model is already driving real behavioral change. The data from Ricker's, Starbucks, Walmart — it all points to the same conclusion: stored value isn't just a payment method, it's a retention mechanism that pays for itself. Luna: And the fintech opportunity is huge — building the rails, the analytics, the compliance infrastructure. For anyone building in this space, the key questions are: how do you minimize breakage risk, how do you keep the user experience simple, and how do you ensure the float income truly covers the incentives? Lucas: Those are exactly the questions our next episode will tackle — we're going to look at the accounting and regulatory side in more detail. But for now, I think the takeaway is: if you're a merchant and you're not offering some form of stored-value wallet, you're leaving money on the table. And if you're a fintech builder, this is one of the most scalable verticals in payments. Luna: And on that note — we'll be back next week with another angle. Thanks for listening. Lucas: Take care, everyone.