Square Teams up With Starbucks to Expand Mobile Payments

Starbucks and Square have announced they will join forces to roll out mobile payments in over 7,000 stores around the US.

Square, an electronic payment service which lets you make credit and debit card payments using your smartphone, will receive a $25m (£16m) investment from Starbucks, as part of the company's latest round of funding, which values it at $3.25bn.

As part of the deal, Starbucks will begin accepting payments using the Pay with Square smartphone app which allows users to pay for goods without ever having to take their phone out of their pocket.

Pay with Square, which is available on Apple's iPhone and some Android smartphones, works using GPS technology. When a customer enters a store using the technology, his or her name and picture will pop up on the cash register and, once the server identifies the person by the picture, all they have to do is say their name to pay for the goods.

Starbucks said that the partnership will reduce its payment processing costs, with Square taking care of all debit and credit card transactions in the US. Square charges a flat 2.75 percent fee on all transactions, compared to some processing companies who charge a fixed fee of between 10p and 25p on each transaction, as well as a monthly fee.

$8bn revenue

In the US alone, Starbucks reported revenue of over $8bn in the fiscal year 2011, and 2012 is online to outstrip that, with growth of between 10 and 12 percent expected for the final quarter of this financial year.

Using your mobile phone as a method of payment has not taken off anywhere in the world yet, but the implementation of this technology, which doesn't require a smartphone to have an near field communication (NFC) chip, could be the stimulus needed to see widespread adoption.

"Anyone who's going to break the mobile payments barrier in the US has to overcome the resistance to try anything new when everything we have works really, really well, even cash, which is very convenient," Bill Maurer, director of the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine told the New York Times.

"But if a big merchant jumping into some mobile payment solution signals to other merchants that there is an opportunity here," he added, "that might change the psychology for other merchants."

As well as using the Square app to pay for goods, it also allows you to discover stores nearby which use the technology, using the Directory service.

Square is not available in the UK yet and the company has announced no plans to extend its service to this side of the Atlantic. There are a number of services from the likes of Barclays Bank, which do allow you to use your smartphone to make credit and debit card payments, but these rely on NFC technology.

Jack Dorsey letter

Founder of Square (and Twitter) Jack Dorsey, said in a letter that Starbucks and Square share a common heritage, in that they both started out small, but have grown into something a lot bigger.

"When Starbucks builds the Square Directory into their apps and in-store Digital Network, it gives Square new visibility, driving more customers to opt-in to Square. And with nearly 7,000 Starbucks stores soon accepting Square, these new payers will be able to find your business (including coffeehouses) and pay with their name, building community and creating value."

As part of the deal, Starbuck chairman and CEO, Howard Schultz will join Square's Board of Directors. "Both Starbucks and Square take a similar approach when building products and running our businesses, and together we can bring the best possible payment experience to Starbucks customers," Schultz said.