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Square and Starbucks to form mobile payment partnership

Starbucks is not just giving a jolt of energy to its coffee-loving customers. Through a new partnership with Square, the Seattle-based coffee company also is giving a huge capital investment boost to mobile payement processor Square.

The companies announced jointly that they will be forming a "broad innovative partnership" that will utilize Square's Pay with Square service in Starbucks' 7,000 stores, route Starbucks credit and debit transactions through Square for processing, and put $25 million in investment capital in Square's bank account.

In the world of mobile payments, partnerships don't get any bigger than this.

According to the announcement, the new partnership includes several parts. First, and perhaps most significantly in the near term, Starbucks will be investing $25 million in Square as a part of a Series D round of funding. Along with the investment, Starbucks CEO Howard Schultz will be joining the Square board of directors.

Additionally, Square will begin processing all credit and debit transactions for Starbucks in the U.S. The companies said the arrangement will "significantly expand Square's scale and accelerate the benefits to businesses on the Square platform." It also will lower Starbucks' payment processing costs.

Square currently processes approximately $6 billion on an annualized basis. Starbucks' revenues, most of which are from U.S. operations, are close to $13 billion. No word on how much of that revenue comes from debit and credit transactions, but it can be safely assumed that the expansion of Square's scale will be "significant."

Along with processing transactions for Starbucks, customers in all Starbucks stores will be able to use Square's Pay with Square application starting this fall. Pay with Square uses location-based services on a mobile device to locate users in a participating store so they can simply pay by saying their names. The store's register then connects a user's profile to a credit or debit card and processes the payment.

To this point, Pay with Square has been somewhat of a novelty used mainly in small brick-and-mortar locations. Users had to find participating merchants using a directory feature in the app. The new deal with Starbucks puts the payment method in all of Starbucks' 7,000 stores.

Starbucks' customers also will be able to use the Square Directory, the merchant locating service within the Pay with Square app, to locate other local merchants from within other Starbucks digital tools like its mobile app.

Of all the components to the deal, it's that last part, and the value it creates to merchants participating in Pay with Square, that Square CEO Jack Dorsey mentioned specifically in an open letter posted to his company's website.

"When Starbucks builds the Square Directory into their apps and in-store Digital Network, it gives Square new visibility, driving more customers to opt-in to Square," Dorsey said in his post. "And with nearly 7,000 Starbucks stores soon accepting Square, these new payers will be able to find your business (including coffeehouses) and pay with their name, building community and creating value."

In an official statement as a part of the announcement, Dorsey said Square is proud it was chosen to partner with Starbucks as the companies both value putting customers first. He also said the deal will help Square give its 2 million merchants the tools they need to grow their business and thrive in today’s economy.

Starbucks CEO Howard Schultz touted his company's position as a leader in mobile payments and said the evolution of social and digital media platforms are causing "seismic changes in consumer behavior" leading to opportunities for business.

"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," Schultz said in the announcement.

Mobile Payments Today will have much more information on the deal, as well as what the partnership means for mobile payments in general, coming soon.

For more stories like this, visit the Mobile/Virtual Wallet research center.

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User Comments – Give us your opinion!
  • Philip Cohen
    53776370
    What is this nonsense?

    Will someone please explain to me what benefit there is to Starbucks getting into bed with Square (or the clunky other middleman, PreyPal)? Square is for small merchants on the move, away from B&M, not for those physical B&M establishments, and the funds still have to come from somewhere (credit card / bank account) and then go somewhere (bank account), and I am sure Starbucks will want their receipts promptly, as they now do get from the traditional players.

    Square is simply another middleman, albeit a useful one for small merchants away from their usual B&M. And, we are here talking about "mobile" for the merchant, not “mobile” for the consumer. So, I'll ask the question again, what benefit does any arrangement with Square bring to Starbucks? And please don’t tell me it will lower Starbucks' payment processing costs because that is simply nonsense.

    In reality, there is absolutely no advantage for any B&M being involved with either Square (or the clunky PreyPal "Here") unless they are setting up temporarily away from one of their B&Ms.

    This story is nonsense, like all that we have come to habitually expect from that other master producer of spin for the gullible media, eBay …

    And, John Donahoe may think that NFC stands for Not For Commerce, but then he is a fool; NFC is the more secure technology that is already in use in most of the rest of the world …
  • Margaux Panlilio
    53300054
    Generally, Starbucks, earned more from Square, because Square was the pioneer of the Mobile POS technology. Must say this is a good partnership, I just hope Starbucks will also open their doors to other MPOS Carriers like mPowa (www.mpowa.com) and Intutit, PayPal Here, etc. Well, I honestly have the feeling it will. :)
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