Friday, August 17, 2012

The Implications of Starbucks’ "Square Deal" On Future of Mobile Commerce

Earlier last week, Starbucks made a square deal with Square creating m-commerce history. The company announced that later this year, all of the stores owned by Starbucks will switch to using Square's payment processing service including its signature card swiping device, which plugs into a Smartphone or tablet. In addition, Starbucks will also support payments for various goods by Square’s "Pay with Square" application, available on IPhone, iPad and Android Devices. Pay with Square uses innovative GPS technology and allows consumers to make purchases and settle tabs without ever removing their mobile device from their pocket. The GPS technology allows user's smartphone to recognize that it’s within 100 meters of a participating retailer and, if the user has allowed the app to do so, automatically open a tab. The user can complete the transaction simply by giving their name; the merchant can verify by matching a user’s photo which pops up on the screen.

The pay with square application is an alternative for mobile payment to Google Wallet and other NFC based payment schemes. The NFC (near field communications) requires phones to be equipped with a NFC capabilities, as well as requires retailers to upgrade to NFC capable cash registers whereas "Pay with Square" just requires merchants to install a software application. 

The deal saves not only saves Starbucks transaction costs - Square charges a flat fee of 2.75% on all card transactions which no minimum or fixed surcharge - but also  a chance to invest 25  million dollars in Square and a board seat for Starbucks’ CEO Howard Schultz on  Square's board of directors

This deal places Square right in the middle of the mobile payment revolution – it’s square device has already been very popular among small merchants and people selling in informal settings such as farmer’s and flea markets and street festivals. However, most of its current customer base uses its signature card swiping device which works with traditional credit cards. The Pay with Square service on the other hand replaces the credit card with user’s smart phone.

While Square already has two million users with more than $6 billion in payments processed annually; most of the current customer base uses Square’s card swiping device. The Starbucks deal will significantly increase Square's reach into consumers who may choose the convenience of walking into a Starbucks and paying for their coffee using "Pay with Square" without taking out their wallet or phone out of their pockets.

With this development, now there is another choice for In-Store mobile payments; in addition to NFC (Near  Field Communication) backed by Google, Mastercard & Visa; ISIS (backed by AT&T, Verizon, T-Mobile & American Express), and Paypal's PIN/ number based Wallet.  Given so many new mobile payment technologies on the horizaon, no doubt all small and large retailers must now serious consider supporting mobile payments—since there is now no way but onwards.

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