2012.27 | Starbucks and Square

Starbucks has already blazed a trail with their current iPhone and Android mobile payments app.  Yesterday’s NYT article indicating that Starbucks will be moving to Square for payments processing puts them even further along the curve of mobile payments.  This is a watershed change in the way that payments are processed in a national retail chain environment.

The article in the Times indicates that Square will process payments for Starbucks in the US, and the description of the implementation indicates that the Pay with Square (previously known as Card Case) application will be implemented as a future phase of this solution.

For the uninitiated, here is how Pay with Square works today:

To use the solution, customers have to have an iOS or Android mobile device with a Pay with Square App installed and be a registered Square User.  That registration includes the users personal details, including a photo, and a credit card connected to the account.  Customers then register with certain vendors where they wish to be recognized.  (Like having a tab at your local establishment)

When the customer goes into a store that uses Pay with Square, their proximity to the store causes the mobile app of the user to register that customer with the point of sale device in use at the store.   A customer would place their order, and at the point of tendering, the cashier can see a list of customers registered in the store based on their proximity.  The customer identifies themselves by name, and that person is selected by the cashier based on validation of their image on the screen of the point of sale register.  The payment is placed on the users card and a notification of purchase is sent to the customers mobile app.

The customer has paid by name and not pulled a wallet or a phone out of their pocket.  They simply walked into the store, asked for a Latte and said, put it on my tab, my name is Pete.  No cash, no card, no mobile, no PIN, no signature, no paper.

Starbucks may use the Pay with Square mobile apps and operate in the same way indicated above, or they may link this functionality to the Starbucks app.

Either way, consider the impacts of this partnership:

  • Square will obtain access to millions of payments every day.  Starbucks already processed 42 million payments over 15 months with their mobile app.
  • This no scan solution is a perfect fit for Starbucks clientele, product mix, and transaction types.
  • The no scan solution is a logical extension of the current mobile app and users accustomed to scanning their phones will easily transition to this payment method.
  • Non-technical users no longer have to be concerned about anything beyond registration.  They can get help with that and proceed with confidence where they may not have paid with mobiles.
  • No cards, no phone scanning, no pins, no signatures could speed transaction times.
  • eReceipts may finally mean the end of treat receipts and postcards in the mail for the free  beverage after every 15 purchases.
  • Millions of users could transfer to this mode of business, driving demand from consumers to simplify payments at other similar establishments.

Of course, the implementation of this solution opens up some other questions:

  • Pay with Square’s Retailer Solution is currently an iPad based app solution.  Will there be an API ported to the current POS HW/SW solution?  Moving to an all iPad solution seems unlikely given the sophistication, customization and inter connectivity to other systems of a POS solution in place at a Starbucks.  Moving from a POS for order taking to another device for payments would be sub-optimal. Current MSRs could potentially be used.
  • Will Square look to integrate with pinpads in future?   For EMV payments, hardware isolated pinpads are required.  Current design uses only an MSR.
  • What if someone doesn’t put a valid photo on Pay with Square?  Will the barista have to turn them down?
  • What if there are too many people in the store with the app.  Does the app have a sort function by name?  If the list is too long, it may make life difficult.
  • How will this interface with Apple Passbook expected in iOS 6?
  • What sort of fraud can we expect?  For a coffee purchase it doesn’t seem worth it or likely.  If you were selling HDTVs, this would be more concerning.

No matter what happens, this mode of payment acceptance is moving beyond experiment now, and we’ll soon see if it is fully accepted by the public.  Expect others to watch this closely.  This is a significant departure from the current paradigm.

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