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Square and Starbucks partnership: Grande idea?


Posted on Oct 29, 2012

Blog post by Rob Carter

Beginning this fall, and already being tested in some markets, Square will begin processing all U.S. credit and debit card transactions at participating Starbucks stores across their 7,000 locations. Pay-with-Square users will be able to locate a Starbucks in the Square Directory from their iPhone or Android smartphone.  Even before partnering with Square, Starbucks had the largest mobile payments network in the country.  The difference is that previously, customers had to load money onto their Starbucks cards and then use their phones to pay. Soon, customers will be able to make debit and credit card payments using the Starbucks or Square app without a Starbucks card. New Pay-with-Square users who frequent Starbucks will be able to pay for their cup of coffee without ever pulling out their wallet!

It was interesting, but not totally surprising, when Starbucks announced a huge partnership and $25 million investment in a promising young mobile payments startup. Square, the three-year-old payments startup from Twitter co-founder Jack Dorsey, has previously focused on serving small businesses. By hooking up with Starbucks, Square will have instant access to a network of 7,000 participating stores and a broad new base of customers who drop by their local Starbucks on the way to work. 

Many companies, including Google and PayPal, are racing to become the go-to option for customers who want to pay with their smartphones. Still, mobile payments haven’t caught on yet in the mainstream, with one exception: Starbucks.  It will be interesting to see if this joint venture with Starbucks catapults Square into the same conversations with some of the larger, more established mobile payment options, or if they are overwhelmed by the growing pains of instantly servicing the thousands of Starbucks around the world. 

Recent reports from Square and Starbucks estimated that they currently process approximately 3 billion and 5 billion dollars of annual revenue respectively, which will place Square in the 8+ billion dollars of annual sales being processed.  Not bad for a 3-year-old startup battling its way through the mobile payments revolution! 

One thought for anyone looking for an enterprise-class payment processing provider, US Dataworks processes about 8+ billion dollars also………although we process that amount EVERY DAY!!!!!!!!!!!

Howard Schultz, CEO of Starbucks, will also be joining Square’s Board of Directors.

More importantly, this catapults Square into the mainstream consciousness for the millions of drones who drop by their local Starbucks on the way to work. Last quarter the Seattle-based coffee company reported $3.3 billion in revenue. This past June Square announced that the company is now processing $6 billion in annual sales. Many companies, including Google and PayPal, are racing to become the go-to option for customers who want to pay with their smartphones. Still, mobile payments haven’t caught on yet in the mainstream, with one exception: Starbucks, which has built the largest mobile payments network in the country through its official Starbucks app.

The experience wasn’t as convenient as it could be, though: first, customers had to first fill up their Starbucks loyalty cards before they could use the app to pay. Still, Starbucks processed 26 million transactions in 2011. As of today, the company has processed over 60 million mobile transactions, with well over one million mobile payments now being conducted every week.

So it was interesting, but not totally surprising, when Starbucks announced a huge partnership and $25 million investment in a promising young mobile payments startup. Square, the three-year-old payments startup from Twitter cofounder Jack Dorsey, has previously focused on serving small businesses. By hooking up with Starbucks, Square will have instant access to a network of 7,000 participating stores and a broad new base of customers.

EVEN BEFORE PARTNERING WITH SQUARE, STARBUCKS HAD THE LARGEST MOBILE PAYMENTS NETWORK IN THE COUNTRY

Starbucks will add a "Pay with Square" feature to its popular mobile app, which already allows customers to make digital payments. The difference is that previously, customers had to load money onto their Starbucks cards and then use their phones to pay. Thanks to Square, customers can make debit and credit card payments using the Starbucks or Square app without a Starbucks card. While there are no concrete dates for when Starbucks will begin accepting Square payments, Schultz said the option will be available in "all of our US stores before the holiday season."

The partnership means mainstream exposure for Square, a Silicon Valley darling that currently boasts two million users and previously focused on small, independent merchants. It also puts Starbucks at the forefront of the mobile payment revolution; besides being able to offer its customers a hip new way to pay, Starbucks now has a large stake in a fast-growing company valued at $3.25 billion.

When Square started, it was just an eponymous white credit card reader that plugged into the iPhone and made it possible for anyone from flea market vendors to political campaigns to take card payments. Gradually, Square started offering more products, including a way to pay with just your name and a digital loyalty card. Square says it is now processing $5 billion in transactions a year.

Square has also developed the Square Directory, which points consumers to the 75,000 business that accept Square payments. As part of the new deal with Starbucks, the Square Directory will be included in the Starbucks mobile app, a strategic move that both companies say will help drive adoption of the payment service. Given that establishing a network has been one of the biggest challenges facing the various mobile payment systems, Starbucks' massive reach essentially put Square's network on steroids.

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New Pay with Square users who frequent Starbucks will not only be able to pay for their cup of coffee without ever pulling out their wallet but they’ll also unlock a new world of merchants. At some point Starbucks will integrate the Square Directory into its own apps but it’s unclear if Pay with Square functionality will also be integrated. (Will this have an impact on Apple and its Passbook app when iOS 6 launches later this year? Starbucks was apart of the Passbook demo at WWDC this past June. Not to mention the fact that Square also has a loyalty program.)

Square’s Co-founder and CEO Jack Dorsey has assured all merchants via email that Square isn’t losing focus on small businesses but rather, the company believes this will boost Square merchant awareness across the board.

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Square’s new directory is a little bit like Yelp, except that it only lists businesses that accept Square as a payment provider.

Today, the directory has about 200,000 restaurants, cafes and bars out of the more than two million individuals and businesses that are registered to accept credit and debit card payments using Square.

When looking at a map, that visually translates into a couple dozen shops in cities like downtown Seattle or Boise, Idaho. In San Francisco, where the company is based, there are even more.

Consumers will be able to use the directory to view menus, find deals and specials at restaurants and pay using the Square Wallet app, which consumers download to the mobile phone and where they store their payment card information. While the site doesn’t have Yelp-like reviews, some merchants do make recommendations on what to order and offer rewards, like 50 percent off your first purchase or 10 percent off every sixth visit.

If you think the number of locations where Square is accepted is sparse, keep these two things in mind: Square is already processing more than $8 billion in payments on an annualized basis, and soon it will be uploading every Starbucks into its directory based on a recent partnership it signed with the mega coffee conglomerate.