Starbucks-Square and How "Point Solutions" Will Drive Mobile Payments

Yesterday Starbucks and Square made a big announcement. The deal is huge for Square and will make it the payments processor for US Starbucks locations. The coffee-lifestyle company also invested $25 million in Square at a $3.25 billion valuation. Starbucks CEO Howard Schultz joined the Square board as part of the deal. Here are the basic terms:

Customers will be able to use Pay with Square, Square’s payer application, from participating company operated U.S. Starbucks stores later this fall, and find nearby Starbucks locations within Square Directory
Square will process Starbucks U.S. credit and debit card transactions, which will significantly expand Square’s scale and accelerate the benefits to businesses on the Square platform, especially small businesses, while reducing Starbucks payment processing costs
Using Square Directory, Starbucks customers will be able to discover local Square businesses — from specialty retailers to crafts businesses — from within a variety of Starbucks digital platforms, including the Starbucks Digital Network and eventually the Starbucks mobile payment application
By accepting Pay with Square, Starbucks is giving millions of customers another way to enjoy a quick and seamless payment experience at approximately 7,000 Starbucks stores.

Why is this important and what’s important about it? Clearly it’s a massive win for Square, which becomes the undisputed “mobile payments” leader in the US with this deal. It brings, scale, prestige, brand recognition and revenue to Square. However there’s nothing actually new here for Starbucks from a consumer experience standpoint. Starbucks has offered mobile payments through its smartphone apps for some time. That will continue. Square’s “Pay with Square” consumer app and local business directory will also become an accepted form of payment at Starbucks. This will give a significant boost to the app, which hasn’t been widely adopted. I’ve described Starbucks before as “The American Idol of mobile payments.” That’s because it’s in a nearly unique position to educate consumers and introduce them to mobile payments in a specific context, where they can experience the efficiency and convenience of paying without using cash or physically swiping their credit cards. I’ve also recently written that it’s this type of “point solution” experience that’s going to be the driver of mobile payments rather than abstract, “horizontal” apps such as Google Wallet. Ultimately, however, Google Wallet and others may be the beneficiaries of the Starbucks-Square partnership and the “education” it brings to the market. The high profile nature of this deal may motivate similar deals or the acceleration of mobile payments at other fast-food and “fast causal” eating establishments. I wouldn’t be surprised, for example, if McDonald’s initiated a mobile payments pilot of some sort in the very near future.