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JPMorgan Chase might have left many industry folks scratching their heads when it announced the Chase Pay mobile wallet at the annual Money 20/20 conference in October.
But fast forward four months later and Chase now has a mobile payments strategy in place that other banks could follow — and a partnership with Starbucks is one of the highlights of this approach.
Chase Tuesday announced during its Investor's Day gathering in New York City that Starbucks will accept Chase Pay as a payment option later this year at its 7,500 U.S. locations. Starbucks also will integrate Chase Pay into its mobile app as a funding source for prepaid account reloads similar to what it has now for Apple Pay.
Chase Pay, which is scheduled to debut later this year, is both an in-store and in-app payments scheme. Chase's premier partner for the system was and still is the Merchant Customer Exchange. But MCX's CurrentC mobile app is still limited to one test market in Columbus, Ohio.
Chase and Starbucks have a prior history together, so the partnership isn't something out of left field.
A PaymentsSource article noted the two partnered on a cobranded Visa credit card called Duetto that was active between 2003 and 2010. When Starbucks started to move away from Square as its payments processor last year, it chose Chase to handle all card-based transactions. First Data processes Starbucks' mobile transactions.
Chase's Starbucks announcement came during an Investor's Day presentation that detailed the bank's upcoming technology investments, which have been a key for financial institutions as more consumers rely on smart devices to conduct everyday banking transactions.
Chase said it invested heavily in its mobile app and ATM network. It also has been open about its involvement with blockchain technology.
But Chase's focus on mobile payments is sure to gain the attention of other banks as they try to determine their place alongside third-party providers such as Apple, Google, PayPal and Samsung.
One of the banks' big concerns about the "Pays" is losing brand awareness with their customers. In Chase’s case, it has some 94 million credit, debit and prepaid cards in circulation
"When you think about Apple Pay, you're loading a Chase card and suddenly the Chase brand is secondary," Michelle Evans, the digital consumer manager at Euromonitor International, told Mobile Payments Today in an interview. "I think by taking this approach and trying to build its own branded wallet, Chase can ensure the future mobile payments experience remains tied to its brand rather than being lost in the shuffle."
This might be an approach more banks take in the next 12 months.
Banks have one of two options when going at it alone with mobile payments: Either add a payments functionality to their current Android mobile banking app, or go the Chase route with a standalone app that is compatible with both major mobile operating systems.
Either way, a bank's primary goal would be to keep its customers within the "four walls" of its institution without losing facetime to third-party mobile wallet providers.
"I think [Chase Pay] is an indication that if you're going to play in this game, you can't do it through a third party and you have to get out in front," Michael Carter, cofounder and chief marketing officer of Prairie Cloudware Inc., told Mobile Payments Today in an interview last month. "What I tell banks is that you're not late to the party, but you could get late really quick. You want to control this. I think the consumers are waiting for you to step up."
Starbucks' alignment with Chase Pay is the second such partnership with a third-party mobile wallet. Last year, Starbucks announced all its U.S. stores would accept Apple Pay in 2016. The company at that point had been accepting Apple Pay in the U.K. for a few months.
As for Starbucks, it stands to benefit from Chase Pay acceptance; at least that's the indication the bank gave merchants last year when it first announced the system.
Chase offers retailers a fixed pricing structure to accept Chase Pay and will not charge for card network fees, merchant processing or merchant fraud liability.
"They're really trying to win over merchants," Evans said. "By embracing this merchant-friendly strategy, Chase has been able to make strides in overcoming that great divide between [mobile-payment providers and merchants] that's long existed."