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Cash, credit, or phone? Starbucks joins Square for mobile payments

Often geared toward local businesses, mobile payment company Square has paired up with Starbucks. How the card-free transaction service could change the way consumers handle money.

By Megan Riesz / August 8, 2012

Starbucks agreed to invest $25 million in Square, a mobile payment service start-up.

Square/Press

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The increasingly popular mobile payment service and company Square has teamed up with Starbucks, signifying another shift toward what pundits have deemed the “mobile wallet.”

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The partnership will allow customers to use Pay With Square, an iPhone and Android app that keeps users’ credit card information and photo identification – rendering credit and debit cards superfluous. When a customer wants to order a drink from Starbucks, all he or she has to do is present a bar code on their phone to the clerk. Eventually, Starbucks wants to fully adapt its GPS technology, at which point workers will be alerted of a customer’s entrance via phone or tablet and will only require the app’s photo.

Starbucks will also invest $25 million in Square, suggesting the coffee company is dedicated to expanding the world of mobile payments. About 7,000 Starbucks locations will serve customers via Square, according to a press release by the now-$3.25 billion start-up. 

“The evolving social and digital media platforms and highly innovative and relevant payment capabilities are causing seismic changes in consumer behavior and creating equally disruptive opportunities for business,” Starbucks chairman Howard Schultz said in a press release. “Both Starbucks and Square take a similar approach when building products and running our businesses, and together we can bring the best possible payment experience to Starbucks customers.”

Square has been applauded for its dedication to small businesses, the majority of which once did not accept credit and debit cards due to processing fees and equipment. Square rakes in 2.75 percent of each transaction and gives some of that to the card companies, making it relatively inexpensive for business owners to accept non-cash payments.

Likewise, some businesses are “drawn by forecasts that more Americans than ever will buy smartphones and tablet computers” in the future, according to a USA Today article highlighting the popularity of Square amongst cab drivers and specialized stores.

But because larger businesses and merchants who don’t need Square to survive, the average shopper has “not caught on with shoppers, which has been Square’s biggest challenge as it tries to expand,” The New York Times theorizes. Which is why some say Starbucks’ stake in the company will have some seriously positive ramifications for the mobile payment service, and perhaps tip the scale in favor of card-free transactions.

“We are still in the early days of mobile payments specifically, but the market is accelerating, especially the amount of innovation that’s happening in the marketplace,” Forrester analyst Denee Carrington told the Times.

“I think it’s going to move faster than anyone expects,” Square founder Jack Dorsey told CNBC Wednesday. “You see this transition to mobile being a device to pay, and this is bringing it to the world in a major way.”

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