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Mobile payments may be a nascent business fraught with uncertainty, but Starbucks Coffee Co. seems to have found a key to success. Last week, the company revealed that more than 3 million transactions have taken place on its smart-phone-based prepaid payments system, which became available in all U.S. company-owned stores only in January.
The Seattle-based coffee emporium’s announcement is significant not only because usage numbers in mobile payments are hard to come by, but also because it indicates a readiness by consumers to embrace something other than conventional mag-striped payment cards. “What it proves is that consumers are ready for better payment technology to do transactions,” says Steve Mott, principal at payments consultancy Better Buy Design, Stamford, Conn. Starbucks would not comment for this story.
While much of the payments industry’s attention has been riveted on developments in near-field communication technology (NFC), which allows handsets to make contactless transactions at the point of sale with e-wallets embedded in the phones, Starbucks’s system depends on so-called 2-D bar codes. This technology, which lets users scan bar codes with their phones to complete transactions, is often seen as an alternative to NFC, which depends on radio-frequency technology.
But Mott argues Starbucks’s early success may spur other merchants to support both NFC and 2-D bar-code technology. “Either/or misses the point,” he says, citing consumers’ willingness to try out new payment forms. “I would imagine there are merchants who would like to support both.”
Still, Starbucks may be a unique case. Drew Sievers, chief executive of Larkspur, Calif.-based mFoundry Inc., whose mobile technology lies behind the Starbucks project, says the coffee chain stands nearly alone among U.S. merchants in its ability to control its point of sale and its consumer accounts, its customers’ loyalty, its independence from card-network dictates in its closed-loop prepaid system, and its high share of smart-phone-using customers. That doesn’t mean, though, that mFoundry hasn’t heard from other retailers. “We’re going to do other stuff with them, and other stuff with Starbucks,” he promises. “It’ll be mobile something, [though] it doesn’t have to be payments.”
In January, Starbucks engineered the largest U.S. chainwide expansion yet seen in mobile payments by extending what had been a pilot for its Starbucks Card Mobile App to almost 6,800 stores. The move increased the number of Starbucks locations accepting mobile payments from more than 1,300 to more than 8,100, including more than 1,000 participating locations inside Target Corp. stores.
Available free of charge for Apple iPhone and BlackBerry model smart phones, the Starbucks app lets customers with prepaid Starbucks Card accounts pay for their lattes and other items using the bar codes the app displays on their phones’ screens. Customers pay by holding their phones next to a countertop scanner. The app also lets customers find nearby stores, check their accounts, and reload them with a credit card or from a PayPal account.
The pilot started in September 2009 in a handful of West Coast stores, expanded to the Target locations last April, and then expanded again, this time to some 300 standalone stores in and around New York City, in October.
While it does not release specific numbers for its prepaid card, Starbucks said in January the card is held by “several million” customers. These customers loaded more than $1.5 billion on their cards last year, up 21% from 2009, and more than 20% of Starbucks transactions are now conducted with the card, the chain says. Meanwhile, it says more than one-third of its customers have smart phones.
