Daily Dose of iQ: Starbucks Invests $25M in Pay with Square App Partnership

Aug 08, 2012 — Allan Pulga

Starbucks, always a trailblazer in mobile commerce and customer loyalty, today announced a $25 million partnership with mobile payment company Square.

"As part of the deal, Square will process credit and debit card transactions at Starbucks stores, a move that will reduce credit card processing costs for Starbucks while expanding Square's scale, the companies said in a statement," wrote Computerworld's Matt Hamblen.

"Starbucks customers won't have to swipe a credit card through a small Square card reader connected to a smartphone or other device to buy coffee. Instead, they will need to download a Pay with Square application to an iPhone or Android device."

(For a closer look at how Pay with Square works, check out our recent blog post on the payment method.)

Hamblen also notes that Square is advantageous to small businesses because it charges lower transaction fees than conventional payment systems. The company is able to do this because it has special agreements with banks and credit card companies, he writes.

As part of the deal, Starbucks CEO Howard Schultz will join the Square board of directors. Mr. Schultz said in a statement that Square will "complement" Starbucks' existing payment systems.

"Square is viewed by some industry watchers as a future IPO candidate," wrote Amir Efrati and Annie Gasparro of the Wall Street Journal. "It has said it is on track to process $6 billion in payments per year while taking a 2.75% fee off each transaction, meaning it would generate $165 million in annual revenue.

"Square previously received an investment from Visa Inc."

Efrati and Gasparro conclude that the deal keeps Starbucks ahead of the curve, as it was already an early adopter of digital and social media: "The company's own mobile-payment smartphone application has processed more than 60 million mobile payment transactions. Mobile payment is available in about 14,000 of Starbucks's roughly 17,650 locations world-wide."

Topics: Privacy, Retail Operations, Wireless Trends, Mobile Industry, Customer Experience, Retail Marketing

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