Starbucks is not just giving a jolt of energy to its coffee-loving customers. Through a new partnership with Square, the Seattle-based coffee company also is giving a huge capital investment boost to mobile payement processor Square.
The companies announced jointly that they will be forming a "broad innovative partnership" that will utilize Square's Pay with Square service in Starbucks' 7,000 stores, route Starbucks credit and debit transactions through Square for processing, and put $25 million in investment capital in Square's bank account.
In the world of mobile payments, partnerships don't get any bigger than this.
According to the announcement, the new partnership includes several parts. First, and perhaps most significantly in the near term, Starbucks will be investing $25 million in Square as a part of a Series D round of funding. Along with the investment, Starbucks CEO Howard Schultz will be joining the Square board of directors.
Additionally, Square will begin processing all credit and debit transactions for Starbucks in the U.S. The companies said the arrangement will "significantly expand Square's scale and accelerate the benefits to businesses on the Square platform." It also will lower Starbucks' payment processing costs.
Square currently processes approximately $6 billion on an annualized basis. Starbucks' revenues, most of which are from U.S. operations, are close to $13 billion. No word on how much of that revenue comes from debit and credit transactions, but it can be safely assumed that the expansion of Square's scale will be "significant."
Along with processing transactions for Starbucks, customers in all Starbucks stores will be able to use Square's Pay with Square application starting this fall. Pay with Square uses location-based services on a mobile device to locate users in a participating store so they can simply pay by saying their names. The store's register then connects a user's profile to a credit or debit card and processes the payment.
To this point, Pay with Square has been somewhat of a novelty used mainly in small brick-and-mortar locations. Users had to find participating merchants using a directory feature in the app. The new deal with Starbucks puts the payment method in all of Starbucks' 7,000 stores.
Starbucks' customers also will be able to use the Square Directory, the merchant locating service within the Pay with Square app, to locate other local merchants from within other Starbucks digital tools like its mobile app.
Of all the components to the deal, it's that last part, and the value it creates to merchants participating in Pay with Square, that Square CEO Jack Dorsey mentioned specifically in an open letter posted to his company's website.
"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," Dorsey said in his post. "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."
In an official statement as a part of the announcement, Dorsey said Square is proud it was chosen to partner with Starbucks as the companies both value putting customers first. He also said the deal will help Square give its 2 million merchants the tools they need to grow their business and thrive in today’s economy.
Starbucks CEO Howard Schultz touted his company's position as a leader in mobile payments and said the evolution of social and digital media platforms are causing "seismic changes in consumer behavior" leading to opportunities for business.
"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 in the announcement.
Mobile Payments Today will have much more information on the deal, as well as what the partnership means for mobile payments in general, coming soon.
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James Wester is a technology writer and blogger with over 15 years of experience in marketing and communications in the technology and payments sectors. Prior to joining MobilePaymentsToday.com as editor he worked as Director of Corporate Communications for Chase Paymentech and ran payment operations for AOL. James has a BA in English from Drury University in Springfield, MO and an MS in IT Management from the University of Virginia.