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The Starbucks IT Roller Coaster Is Now On Top

Written by Evan Schuman
November 11th, 2010

As the number of retail alternative payment experiments soars, it’s sometimes helpful to see what the non-traditional retail payment veterans are doing. Starbucks CEO Howard Schultz gave us a good hint last Thursday (Nov. 4) when the $10.7 billion coffee house reported that its customers in fiscal 2010 “loaded more than $1.5 billion on Starbucks Cards.”

As a payment card, it’s CRM On Steroids, in that almost no customer with the card would likely forget to use it. That makes it an impressively complete record.

Let’s put those numbers into context. That $1.5 billion represents more than 14 percent of all the chain’s revenue. That loyal piece of plastic is used to pay for, according to Starbucks, “nearly one in five consumer transactions,” and that reflects a 20 percent increase compared with the prior year.

More stats: Nearly 2 million customers have joined the program since its launch 10 months ago, and more than 1.25 million have made at least 30 purchases.

The history of Starbucks, especially when it comes to IT and related mobile and Web efforts, is an impressive rollercoaster. In its earliest days, the chain demonstrated an understanding—nay, a mastery—of social networking long before Facebook or MySpace existed.

Starbucks made its shops a cool and fun place to go, to hang out and to talk. It was a place to meet with friends and business associates, to take a meeting and perhaps to even connect to Wi-Fi and work for four or five hours.

But the Web was just starting to catch on and, even when it was several years old, Starbucks never seemed to take the Web seriously. Starbucks never achieved Web buzz and it started seeing per-store figures drop sharply.

Starbucks then stayed on a bad path, spotting the great marketing trends but falling way short in execution. An initial CRM Web effort deservedly fell flat, and a powerful mobile launch was marred by an application that seemingly couldn’t do anything productive. Even an impressive idea for mobile gift cards was tripped up by a major security hole.

The rollercoaster of Starbucks strategies is now on an upswing. A well-thought-out mobile-to-in-store program and revised mobile payments seem to be working.

Hopefully, the chain is now moving in a good direction for the foreseeable future. After all, a hot cup of coffee and a rollercoaster rarely make a good combo.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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