Starbucks and Square have announced a broad partnership that will involve the coffee chain switching the processing of US credit and debit cards to the payments startup.
In addition, users can make payments in Starbucks outlets in the US from this autumn with a Square app, which is a boost to what is a slower growing part of the startup’s business.
The coffee chain will also invest US$25 million in Square as part of its D round financing. Reports now place a value of US$3.25 billion on the payments startup. And Howard Schultz CEO will join the Square board.
However there is no mention in the announcement of Starbucks stores using Square’s popular card reader to accept payments. Take-up of the card reader to date has predominately been among small businesses.
Starbucks will promote Square’s directory of its customers from within a number of Starbucks’s digital platforms including eventually its own mobile payments app.
The coffee shop’s mobile app has had a strong take-up among its customers who use it for making payments in Starbucks outlets. From the autumn customers will be able to also choose the Pay with Square app alongside it.
Starbucks says switching to Square as its payments processor will reduce costs but would not comment on the scale of savings or who is being replaced.
The announcement makes no mention of any markets outside the US. Square has yet to hit international markets although there has been speculation that such a move is imminent.
There is likely to be further developments in the partnership. For instance, initially users making a payment with the Square app will need to show a barcode on the smartphone screen in a Starbucks. But later the companies hope to use GPS so that a regular user’s name and photo will appear on the cashier’s screen, so enabling speedy authentication.
In response to the news of the partnership, the shares of Square rival Verifone fell by 11 percent while Morgan Stanley analyst Glenn Fodor said the news could be "mixed to negative" for PayPal, another competitor to Square. Users can use PayPal as well as credit cards in Starbucks's mobile app.