Last week Starbucks announced that the mobile payment scheme it has been piloting for some time will be available for all 6,800 Starbucks stores and Target locations across the US. The solution is not yet in place in Canada.
For the uninitiated, the solution works as follows. Consumers download the Starbucks Card Mobile App to their mobile phone; be it iPhone or BlackBerry. Customers with a Starbucks stored value card (effectively a gift card) that is registered on the Starbucks website, enter the card number into their phone when the obtain the app, and that card number is stored. When consumers visit a store, they place their coffee order as usual, and indicate their desire to tender with their mobile. Consumers start the Starbucks Card Mobile App on their mobile and navigate to the payment screen so that a 2d barcode representing the consumers’ Starbucks card is displayed. The Starbucks associate, selects mobile as the tender in the POS, and prompts the consumer to use the customer facing imager (the same as those used in airports to read boarding passes). The consumer places their mobile device under the imager, the 2d barcode is read, and the POS treats the tender like a gift card, following the usual payment verification procedure. Once tender is complete, the customer obtains their coffee as usual.
The discussion on electronic wallet is an industry favourite, and this development will certainly encourage more discussion on the subject and provide some much need experience. I’m fully behind this initiative, but at present, this solution is very much a Starbucks specific solution, and it is not easily translatable to other retailers. While retailers can learn a great deal from the obvious careful thought that has gone into the solution, and we can look forward to others moving down this road as well. To clarify for consumers (and non-technical retail executives) who ask why other retailers don’t have mobile payment schemes as yet, consider the following unique characteristics of the Starbucks situation that make a solution like this pay off.
Use of Stored Value Card - Very few retailers have a stored value card with the massive following and ongoing usage that Starbucks have. Effectively consumers are giving Starbucks their funds in advance in exchange for some very small benefits (free drink on your birthday, free pump of flavouring in your drink). Starbucks gets loyalty data on customers, and a nice balance of cash on hand. More relevant to the mobile payment solution, the Starbucks mobile phone application allows consumers to make a payment onto their stored value card, and the application’s 2d barcode payment system is connected to that card. Connecting the mobile payment system to the stored value card means that Starbucks can take the risk of a payment system internally. Stored value are not subject to the same roadblocks, legislation, and scrutiny that building a mobile payment system that would access a credit card or a debit card would have. Using the stored value card simplifies implementation and sidesteps many complexities of payment systems like EMV and PCI.
Cross Platform - While Starbucks are very keen on the iPhone, they have not limited themselves to an iPhone app, but also provided an app for the other key smart phone users via the Blackberry App. Considering the corporate core of Blackberry users and how often meetings now take place in Starbucks stores, this is a wise move to maximize potential users. Given the number of Android Users and the recent release and growing use of Windows 7 Phone platforms, it would not be surprising to see the Starbucks Card App ported to those platforms as well, ensuring maximum potential usage.
Valuable App - With over 400,000 apps on iTunes, retailers need to make their app unique and useful. Ideally it pulls together the mobile and in store experience in some way. Starbucks has managed both. Any successful retailer’s mobile app needs something unique to it to encourage download, and having it on a consumers screen on a permanent basis.
Customer Demographic – Based on my experience, and what I have read in the media over the past few years, the average Starbucks consumer is more likely than average to be a tech-savvy iPhone or Blackberry user, and beyond that, the kind of user who would be comfortable with technology and placing a payment with their mobile. It is important that any solution put in front of a consumer by a retailer fit their target market. A savvy comfortable customer is more likely to use the app, and use it well, to speed transactions and drive convenience for them, and speed throughput for the retailer.
Infrastructure – Most Starbucks locations have 2 terminals. In order to leverage 2d barcodes, special imagers are required, and this means hardware investment. 2 lanes means only a $300-$400 investment per store for imaging hardware. Considering the potential value of transactions per store, this is a very low cost. The ROI would be far less attractive for a lower margin retailer with dozens of lanes in a store to deploy, as it would be key to have the imagers in every lane to simplify the process for consumers.
Transaction Type - The slowest portion of any retail transaction, and the most difficult to trim time from, is the tendering process. Given that in Starbucks transactions generally include a small basket size and the ordering time is relatively short, the value of an alternative payment is increased, as it is a greater proportion of the transaction. This value is increased further by the incredible traffic at Starbucks sites. Having many small transactions provides a boost to the ROI of the solution.
No Mobile Device Handling - In order for any sort of mobile payment solution to increase throughput and minimize operational complications, it is key to streamline the process of scanning the mobile device. Starbucks has done this via a customer facing scanner with very simple signage. This allows the consumer to place their phone in the scanning area with no need to pass the mobile device to a cashier. This simplifies the process by providing a consistent process, not only increasing the scan speed, but also avoiding the potential of store staff dropping or otherwise damaging a customer’s mobile device. Consumers are also more likely to use the mobile payment solution if they do not have to pass their mobile phone to a cashier, given how consumers increasingly consider the mobile device as a personal item.
As with all solutions implemented by consumer facing organizations, ROI is key. Looking at the Starbucks solution, the costs of entry are probably not that high. A mobile app is relatively inexpensive and standalone compared to other point of sale solution implementations. Using the stored value card leverages electronic processes and databases already in place. The crucial part is operationalizing the solution, and that can be put in place for hundreds or low thousands per site. All in all, this is a relatively low cost solution with the potential for a high ROI in both funds, and in good will from consumers. Other retailers looking to implement such a solution would do well to observe what Starbucks have done, but note well that this is not a one size fits all solution. Any future implementers should be sure that the app suits their customer demographic, their transaction model, and has a way of dealing with the complexities of payment. Other solutions will arise, and it will be fascinating to see what comes next.