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The Starbucks mobile wallet: Will fantasy become reality?

Mobile Payments Today Editor Will Hernandez believes robust rewards could help such an initiative take off.

July 24, 2014 by Will Hernandez — Editor, NetWorld Media Group

Starbucks acts more like a technology company than a coffee expert with each passing day. Think about it: A retailer has done more to advance mobile payments than almost all the industry's entrenched heavyweights' combined efforts. And it appears Starbucks isn't done.

The company's chief digital officer, Adam Brotman, spoke to Re/code last week at Fortune magazine's technology conference and revealed a couple of things, the second of which could shake up the industry.

First, Brotman told the outlet more details about the coffee giant's plan to add an order-ahead feature to its popular app. While such an addition is nothing new in the fast casual and QSR food space, it will give Starbucks' customers another reason to tap into the app.

Starbucks is testing the feature at a model store inside its Seattle headquarters. I imagine there are many challenges involved with perfecting the order-ahead process in a coffee environment. As a former Starbucks barista, I can tell you some customers are very particular about their drink temperatures.

Brotman also revealed to Re/code that Starbucks is in discussions with other retailers about a scheme that would enable consumers to use the company's app to pay for items at other merchants.

Starbucks would also extend the company's loyalty model to other retailers. That plan essentially would turn the Starbucks app into a mobile wallet. Isis, Google Wallet and others now are officially on notice.

Brotman's revelation is a little different from what company CEO Howard Schultz said during an earnings call in April.

Schultz said then that tech companies and national retailers had approached Starbucks about duplicating its mobile efforts for others. Starbucks had not decided either way what it would do (the company said Thursday during its Q3 earnings call that it was still having such discussions), but Brotman divulged a different approach altogether.

Starbucks as a brand is more recognizable than Isis and Google Wallet. If the coffee giant moves forward with this particular plan, it can carve out some nice territory in the mobile payments kingdom.

A Starbucks-branded mobile wallet with widespread merchant support would certainly address the retailer adoption issue; though the app's current use case is probably best suited for the fast casual/QSR food sector. How many times have we heard at an industry conference this question: How can we mimic the Starbucks experience?

But as I wrote back in April, some industry analysts aren't so sure the Starbucks approach works for everyone.

"It's kind of a bit of wishful thinking," James Wester, research director of global payments for IDC Financial Insights, said to me about whether Starbucks can help others. "If only Apple came in, they'd solve the [mobile payments] problem. If only Starbucks could come in, they are going to solve the problem. It may be that with mobile payments, there's not going to be one solution or provider that's going to work across all payments types, whether it's online or offline."

That said, we can still do some fantasy booking (pro wrestling jargon for scripting storylines and matches) for the Starbucks mobile wallet.

Starbucks could use the restricted authorized network approach to enable consumers to use its app to pay for a drink at Jamba Juice or movie tickets at AMC Theaters. If you're unfamiliar with the restricted authorized network model, it means consumers can load one prepaid account and use one card to pay at a select group of different retailers. It's not a closed-loop system that works only at one merchant.

But what about the rewards system for our fantasy mobile wallet? This is where Starbucks and its partners can get creative.

Starbucks can work with each individual merchant to develop a rewards system that works best. One of the most attractive aspects of Starbucks' rewards is the free drink or food item. Free items and deep discounts should be at the center of every merchant's rewards program when they participate in this wallet. Those companies can flesh out the details after they establish the core.

Once merchants establish their individual rewards system, then Starbucks and its partners can create network-wide rewards. Users should be rewarded for staying within the retailer network.

Let's say I make 10 transactions over a 30-day period with my Starbucks wallet. I go to Starbucks a couple of times, I go see the latest Marvel move, I order a couple of juices from Jamba, I stuff my face with a cinnamon roll (or two) from Cinnabon. Starbucks can take that data and give me multiple options for a reward. It can be a $5 credit towards my next movie ticket, or a free pastry at Cinnabon. Or the wallet can go a step further and deposit a $10 credit in my account so that I can spread the love. Merchants can keep their individual rewards programs, but the network can entice consumers to visit multiple partners in the group.

Again, this is all fantasy talk at this point. Starbucks can add much more utility to this mobile wallet. I didn't even address how BLE technology could be used with this offering. 

What I've described above should be the model for the Merchant Customer Exchange, but that initiative is stuck in purgatory at the moment. Starbucks is offering something much more real, especially considering what its system has done for it to date. This fantasy has a great chance to become reality. Ring the bell and start this match. 

About Will Hernandez

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Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.

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