Starbucks Now Operates Largest Mobile Payment Acceptance Network

by Mercator Advisory Group 0

Very few mobile payments schemes have broken out of the pilot phase into full-scale production. The Starbucks closed-loop card app is now available at all 6,800 company stores in the US and at the 1,000+ Target locations that host a Starbucks coffee shop.

Starbucks has been masterful in its operation of the Starbucks gift card program. It accounted for some $1.5 billion in sales last year, a phenomenal number. The company has piloted its Starbucks app for 18 months or so using app technology from mFoundry. Based on a 2D barcode representation of the card account number, the payment method has proven to be secure enough for the closed-loop coffee business and popular with its smartphone-wielding, latte-drinking customers.

It’s no trivial investment by Starbucks. The system requires an image scanner, not a laser-based 1D barcode reader, to read the 2D code from a smartphone screen. These devices cost around $250 apiece, plus installation. At $500 per store, that’s $3.9 million. But that’s just .26% of that $1.5 billion card program volume. For the price, Starbucks gets to be a top-of-mobile wallet application and has an always-on marketing channel- housed on a device the customer pays to own and operate. It doesn’t get much better than that.

The VentureBeat comments (below) are, unfortunately, an example of uncritical, hyper-conflation of mobile themes and technologies. Mobile payments are going to be highly application-specific for the next couple of years. Starbucks just happens to have found the perfect match between mobile, its broad customer profile, and the size and frequency of product purchase. Again, it just doesn’t get much better than that.

The development could herald the arrival of mobile payments in the mainstream. The technology has been used for some time with cell phones in Japan, where near-field communications chips are built into many phones. The New York Times didn’t say precisely what technology is being used. But whatever technology the Starbucks app uses, it’s one more step that could wean Americans from cash.

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