I first heard about Coinstar 6 years ago in a TV advertisement and immediately thought it was the dumbest idea ever. See, I was living in Illinois at the time and you could easily just go to any bank teller and convert your coins into cash for free. Coinstar charges a 10% fee – so why would I pay someone to give me $9 for $10? I hope you see my dilemma here.

Then I moved to California. Over the last 2 years I’ve acquired a lot of coins and decided to go to my nearby bank and turn my pot of coins into CASH! Unfortunately, California banks simply gave me some coin wrappers and wanted me to do all the coin counting by hand. I knew I had at least *200 pennies and had no patience to do the counting. I decided to swallow my pride and go to a nearby Safeway grocery store and use Coinstar.

After I deposited my cash I was pleased that I didn’t have to give up 10% of my money – I could simply get a giftcard instead.

They had a ton of options. Pretty much a giftcard from any of the top brands.

This is a brilliant way to avoid no fees. I bet Coinstar actually makes more than 10% off the brands that provide gift cards. Retailers love gift cards because they are high-margin and low-maintenance.

Side Note: Coinstar made $2 Billion in revenue last year. Their business model is simple and brilliant, “Give me $10 and I will give you $9 back”. This business model reminds me of a story  about how the founder of Reliance (the most profitable company in India) made some cash in the early days.

The Yemeni Rial Coin had high content of pure silver around 1948. Young Dhirubhai (the founder of Reliance) perceived high demand for ‘rial’ in London Stock Exchange and purchased them in bulk and melted the coins in silver and sold it to bullion traders in London. Though it was stopped in 3 months, D.A. made a few lakhs of Rupees in this transaction.

What Coinstar and Dhirubhai Ambani are doing is really the heart of any good business model, turn money into more money.

*PS I had 432 pennies and got the Starbucks gift card.