Squarebucks: Starbucks’ $25M Square Deal Bringing Mobile Payments to the Masses


Starbucks’ $25 million investment in and deployment of Square for mobile payments, signed Tuesday by Square CEO Jack Dorsey and Starbucks CEO Howard Schultz, will help spur adoption of mobile commerce in the US, with a halo effect that will be felt beyond.

Square will begin processing all credit and debit card transactions at Starbucks’ nearly 7,000 company-owned shops in the United States this fall via Pay With Square, and soon, customers will order their café du jour and charge it to their credit card just by saying their name. 

“Starbucks is one of the largest organizations in the world, taking technology like Square — simple, fast and focused on customer experience — and bringing it to a massive scale,” commented Dorsey to the New York Times.

The Twitter co-founder and executive chairman (naturally) tweeted the whole deal, sharing the big news late Tuesday night in New York and subsequently posting photos of Adam Brotman, Starbucks’ chief digital officer, using Square (and tipping 30%) in a NYC taxi; the deal-signing with Schultz taken Tuesday night in New York; and a twitpic on the floor of the New York Stock Exchange Wednesday morning.

It’s a huge week for Square: it’s also receiving some cross-promotional love from Apple. Check out the new TV commercial for the iPad (being swiped as the voiceover says “make a sale”) that debuted Tuesday night, below.[more]

While the partnership ramps up, customers will have to show a bar code on their phone to a merchant, but the imminent deployment of Square’s full GPS technology will alert a store when a customer arrives, display their name and photo on the cashier’s screen, and the visual match seals the deal.

According to a recent Forrester Research survey, 30% of U.S. mobile phone owners are “interested in using mobile payments,” but it could take another three to five years for adoption by a critical mass. The Starbucks- Square liaison may bring it on sooner. As Schultz stated, “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.”

Square debuted in 2010, and like rivals in the mobile commerce space — Google, PayPal, Sprint, Microsoft and start-ups Scvngr and GoPago (also making today’s New York Times) — the inherent barrier has been twofold: the requisite participation of multiple players, retailers, credit card companies, banks, cellphone carriers and phone manufacturers, and, changing consumer payment behavior from credit card to cellphone.

As Schultz told the NYT, “My hope is that by creating a national footprint for Square technology in all Starbucks stores in the U.S., that it will be a catalyst for Square to get access to tens of thousands of other small business and democratize payments.” More than two-thirds of the 27 million small businesses in the U.S. don’t accept credit or debit cards, and Square offers those SMB’s and larger retailers its flat, 2.75% transaction fee as an alternative to higher fees associated with payment and application processing and requisite credit checks. 

Starbucks’ mobile app already racks up more than one million mobile payments weekly, and with Square’s two million plus users able to reduce their ritualized wait-in-line-morning-java-jolt by 40 seconds, the multiples of revenue and profit are astronomical.

“We’re proud that Starbucks chose Square, as we share the value of always putting customers first,” said Dorsey in the press release and his letter (“proud” being the word that he and his employees have been using repeatedly to describe the deal on Twitter). “This partnership will accelerate our ability to provide them with the tools they need to grow their business and thrive in today’s economy.”

Starbucks’ investment is part of a larger financing round and brings the San Francisco-based Square’s valuation to $3.25 billion. Schultz also joins Square’s seven-person board of directors as part of the deal. According to the Wall Street Journal today, “Square is viewed by some industry watchers as a future IPO candidate. It has said it is on track to process $6 billion in payments per year while taking a 2.75% fee off each transaction, meaning it would generate $165 million in annual revenue.”

And that revenue may make cash at least somewhat obsolete — eventually. Forbes’ Peter Cohan in a column titled “Will Square’s Starbucks Deal Spark the End of Cash?” admits that “I am not holding my breath for this marking the end of cash. But its replacement with mobile payments could follow an S-curve. Young smart phone users could create an initial burst of demand followed by slower growth among older smart phone users. Eventually this could result in a much more marginal role for cash as mobile payments dominate.”

Dorsey’s letter sums it all up: “Our customers make us who we are, and we are proud of every single one of you—including our newest. Our promise to you remains the same: build simple, affordable, and fast tools that level the playing field for everyone. Thank you for helping us build Square. And please share your thoughts and tweets; I’m listening. As Howard Schultz says: #Onward.”

Below, a look at how Square brings mobile commerce to small businesses with its Square Register clip-on for the iPad: