Expensive interchange fees associated with credit/debit card payment processing, cumbersome merchant application procedures and mandatory credit checks are just a few reasons why many retailers prefer not to accept credit/debit payments. In fact, more than two thirds of the nation’s 27 million small businesses currently do not accept credit/debit cards. While this option helps businesses of all sizes reduce related costs and procedural requirements, it can deter traffic from customers who prefer these vehicles, especially as mobile payments become more mainstream.
To provide a convenient, cost-effective and innovative payment experience for both sides of the counter, Starbucks Coffee Company has announced a partnership with Square, Inc., a provider of free credit/debit card readers and lower-cost processing for credit/debit purchases made via the iPhone, iPad and Android. Square is a start-up led by Jack Dorsey, CEO ― the former Co-Founder of Twitter.
Square’s processing fees are 2.75% per swipe, according to its web site ― much lower than the average 2% to 3% of the total transaction amount merchants traditionally are charged.
Starting this fall, by accepting Pay with Square, Starbucks is giving millions of customers another quick and seamless payment experience at approximately 7,000 Starbucks stores. To use Pay with Square for purchases made at participating Starbucks locations in the U.S., customers simply download the Pay with Square app and set up an account on their mobile devices. The more consumers enjoy the convenience of Pay with Square and use it at Starbucks and other merchants listed the Square Directory, the more rewards they earn for use at these retailers.
“The evolving social and digital media platforms and highly innovative and relevant payment capabilities are causing seismic changes in consumer behavior,” said Howard Schultz, Chairman, President and CEO of Starbucks. Because Square's technology allows merchants of all sizes to accept credit and debit cards, “it gives entrepreneurs an essential tool to jump-start their businesses while providing existing small companies access to new customers,” added Schultz. “This development can play a vital role in spurring small business growth and hiring, which remains one of our country’s most important issues.”
Under terms of the agreement, Starbucks will invest $25 million in Square as part of the company’s Series D financing round; and Schultz will join Square’s board of directors.
Forrester Analyst, Denee Carrington, said this partnership represents a “significant milestone in the advancement of mobile payment digital wallets.” According to Carrington’s recent blog, the collaboration represents an accelerated adoption in mobile payments, and “gives Square broader visibility and awareness,” she said, “as well as the opportunity to earn the confidence of new customers with a digital wallet, which will drive broader adoption overall.”
By offering a digital payment method, Starbucks continues to provide its customers with a personalized shopping experience. “Those of us who frequent Starbucks know that their employees work hard to get us through the line quickly, even with each order uniquely customized,” Carrington added. “Many baristas even know the preferred beverages of their most loyal customers. Although not part of the initial implementation, this type of customer recognition, embedded loyalty, and faster checkout is what Square enables for its existing merchants. If the Starbuck/Square duo can successfully deliver a more convenient, contextually relevant and compelling experience, then consumers will look forward to using the Pay with Square digital wallet at Starbucks and with their other favorite merchants. It also will set a new a standard for the type of compelling experience that consumers will know is possible and will come to expect when using a mobile digital wallet.”
With the Starbucks/Square announcement, the U.S. retail industry may be delving into payment methods at a time where cash and other methods already work well. As stated in The New York Times, “Anyone who’s trying to break the mobile payments barrier in the U.S. has to overcome the resistance to try anything new when everything we have already works really, really well, even cash, which is very convenient,” reported Bill Maurer, Director of the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine. “But if a big merchant jumping into some mobile payment solution signals to other merchants that there is an opportunity here, that might change the psychology for other merchants.”
In his August 8, 2012, letter to merchants, Dorsey discussed the partnership and addressed the benefits of working with the coffee company: “[Starbucks sees] an opportunity to extend and accelerate a model they grew up with: the idea that business is local and that community plays a vital role in job creation and economic vitality.”
When Starbucks builds the Square Directory of merchants into its apps and in-store Digital Network, said Dorsey, payers at 7,000 Starbucks stores will see the names of other local merchants listed in the Square Directory. As these consumers seek to increase their Square reward totals, their additional local purchases will help build community and create value.