Starbucks-Square Partnership Could Take Mobile Payments Mainstream

On Wednesday, Starbucks Corp. Chief Executive Officer Howard Schultz announced that the world’s largest retail coffeehouse chain will begin to integrate Square Inc.’s mobile payment processing system into 7,000 of its store locations in an effort to expedite customer transactions. In addition, Starbucks will invest around $25 million into the 3-year-old Silicon Valley startup, created by Twitter Inc. co-founder Jack Dorsey, and CEO Shultz will join Square’s board of directors.

Currently, the existing Starbucks mobile payment system, an Apple Inc., iOS, and Google Inc. Android operating system smartphone application, handles slightly more than 1 million mobile payments per week. The Starbucks application (app) has processed around 60 million payments in total since its introduction.

Square’s technology, which allows businesses to process payments at a charged flat rate of 2.75 percent via an included smartphone and tablet headphone jack credit-card swiping dongle, has around 2 million merchant customers and processed around $6 billion in transactions last year.

Commencing this winter season, Starbucks will continue to accept payments from its existing mobile app along with the Pay with Square app. In addition, Square will become the sole processor of all credit and debit card transactions in all of Starbucks’s stores in the United States.

For the Square customer, unlike other mobile payment system competitors, chiefly eBay Inc.’s PayPal, Isis (a union of large telecommunication firms), Google Inc.’s Wallet, or the large credit-card companies themselves, the Pay with Square app system does not use a virtual wallet or virtualized credit cards. Rather, Square maintains a directory of the customers’ favored businesses, participating Square merchants within proximity of their smartphones, and through GPS technology bypasses the need to scan barcodes by simply billing an open “tab,” which corresponds to the user’s photo identity.

With a total of $60 billion in mobile transactions in the United States last year, expected to grow to around $170 billion during the middle part of this decade, Starbucks and Square are both aware that consumer spending behavior has evolved in unison with the technology in their lives. Inevitably, as has historically been the case with all technological advancements, there will be initial skepticism and resistance to change, then early adoption, and eventually wide-scale integration.

From a global macro-level perspective, in comparison to many of the established and emerging markets of Asia, the United States is still in its relative infancy with mobile payment adoption and usage. The Starbucks and Square partnership could be the catalyst needed to not only familiarize mainstream merchants and consumers with the technology but also perhaps accelerate the slow but unavoidable extinction of physical money altogether.

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