Editorial Policy

Starbucks Deal Puts Square App in the Spotlight

Marcia Frellick

August 8, 2012

Starbucks and Square have signed a venti-sized deal that could make that frappuccino even easier to buy — and, possibly, make a major player out of the payment start-up.

You may have heard of Square — it’s the mobile payments company that makes those swipe dongles small merchants and Girl Scouts alike have been plugging into their smartphones to accept card payments. It also has an app called “Pay with Square,” which allows customers to use their phones — instead of cards — to pay. And it’s this app that should be fully functional in all 7,000 Starbucks locations this fall.

How Square’s app works
The Square app allows customers to store payment card info as they would with other digital wallets. That card will get charged each time the cardholder uses the app to pay.

Once Starbucks installs Square’s GPS technology, you will be able to open a tab simply by walking into the store. The store’s technology will recognize your phone, and your name and photo will pop up on cashiers’ screens. Once you’re ready to pay, you need only give your name to the cashier, who will then verify your identity based on the photo. After the transaction is completed, you’ll get a notification on your phone that lets you know your payment was successful, lets you view your receipt and lets you leave a tip if you so choose.

If you’re a fan of the mobile payment app that Starbucks already launched in 2011, you can continue to use it. But, unlikethe Starbucks app (which requires you to scan a barcode), the Square app lets you keep your phone in your pocket.

Advantages for Starbucks and Square
Square is getting a $25 million infusion of cash from Starbucks out of the deal. It will also become the processor of all Starbucks’ credit and debit transactions — meaning it will earn a percentage of each transaction.

Starbucks, meanwhile, gets a chance to further differentiate itself in the coffee shop world and latch firmly onto Square’s software — a technology that’s becoming the mobile payment method of choice for a rapidly widening sector. It will also add its president and CEO, Howard Schultz, to Square’s board.

“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,” said Schultz in a press release.

Playing on a bigger field
Teaming up with a mega-chain gets Square some spotlight. Up until now, most of Square’s users have been small businesses, food trucks, and sellers at farmers markets, festivals and flea markets.

The alliance could also give Square a leg up on its mobile payments competitors like Isis and Google Wallet, which just became compatible with all card issuers. Square already starts out with an advantage over some of its competitors in that it doesn’t require phones to be equipped with near field communication (NFC). NFC is a wireless technology that allows a payment device (such as a phone) and a merchant’s payment terminal to communicate. Google Wallet’s NFC-dependency has been a hurdle, as the number of NFC options for mobile phones is limited to a handful (that doesn’t include the iPhone). Square, meanwhile, relies on GPS technology, making it compatible with most smartphones.

Though smartphones have a long way to go before they replace wallets, this new partnership puts mobile payments that much closer to mainstream. After all, if Starbucks is willing to make this leap, can other national brands be far behind?