Starbucks, Mobile Payments And The Oprah Effect

starbucks_wwdc07How Starbucks will drive changing social behavior and user adoption into 2016


Starbucks has been an early mover in recognizing and embracing the huge opportunity presented through the use of social media and digital platforms.

Launched in Dec 2009, the My Starbucks Rewards loyalty program has been widely successful, both creating value for the customer and building loyalty to the Starbucks brand. According to Q2 FY12 Earnings Conference Call, more than 4.7 million active members in the U.S. and over 2 million members in the loyalty program internationally loaded more than $2.5 billion on the cards annually. The Starbucks Cards currently account for 1 in 4 transactions in U.S. Starbucks stores.

In Jan 2011, the My Starbucks Rewards loyalty program evolved with the launch of the Starbucks Mobile Phone App. This integration marks the beginning of the Starbucks mobile payment ecosystem. The opportunity in front of us is in its infancy.

“Evolving social and digital media platforms in highly innovative and relevant mobile payment capabilities are causing seismic changes in consumer behavior and creating equally seismic disruptive opportunities for business. Starbucks identified the power of mobile payment capabilities earlier than most retailer’s restaurants and consumer brands and now have processed over 55 million transactions since launching it in January 2011. And today, we operate one of the world’s largest mobile payment programs processing over 1 million mobile transactions per week in the U.S. alone.” **

** An excerpt from Starbucks Q3 FY12 Earnings Conference Call, Howard Schulttz, CEO

This changing social behavior spearheaded by Starbucks’ user adoption of 2011- 2012 is about to go to the next level . With Apple’s Passbook App released in iOS 6 Sep 19 2012 and Google’s backing of NFC and release of the Google Wallet API to developers at Google IO Jun 27 2012, the opportunity in mobile is just beginning.

Starbucks Announces Mobile Payments Partnership

On Aug 7 2012, Starbucks (NASDAQ: SBUX) announced a partnership with Square Inc, a mobile payments transaction company whose product enables anyone to accept credit cards anywhere, anytime for everyday transactions through the use of their free credit card reader for the iPhone, iPad, and Android device

“By accepting Pay with Square, Starbucks is giving millions of customers another way to enjoy a quick and seamless payment experience at approximately 7,000 Starbucks stores. The partnership will also accelerate the ability of small businesses to grow with Square’s innovative technology and a stronger and more widely available Square network.”

“More than two-thirds of the 27 million small businesses in the U.S. currently do not accept credit or debit cards, in large part because of the expensive interchange fees associated with payment processing, cumbersome application process and required credit checks. Square enables merchants of any size – from sole proprietors to national retailers – to accept credit and debit cards.” ***

The partnership terms include:

•Customers will be able to use Pay with Square, Square’s payer application, from participating company operated U.S. Starbucks stores later this fall, and find nearby Starbucks locations within Square Directory;

•Square will process Starbucks U.S. credit and debit card transactions, which will significantly expand Square’s scale and accelerate the benefits to businesses on the Square platform, especially small businesses, while reducing Starbucks payment processing costs;

•Using Square Directory, Starbucks customers will be able to discover local Square businesses — from specialty retailers to crafts businesses — from within a variety of Starbucks digital platforms, including the Starbucks Digital Network and eventually the Starbucks mobile payment application;

•Starbucks will invest $25 million in Square as part of the company’s Series D financing round;

•Starbucks Chairman, President and CEO Howard Schultz will join Square’s Board of Directors.

*** Starbucks Accelerates Mobile Payments Leadership by Choosing Square for Payments

This partnership marks a major milestone in changing social behavior. As smartphone market share increases into 2016 and user adoption continues to takes place, a whole new class of product opportunities is created. The mobile phone as an adaptable use device is only just beginning.