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Starbucks Dominates Mobile Payments. Why Isn’t Anyone Else Even In The Game?

Written by Frank Hayes
January 30th, 2013

Starbucks revealed just how far it is ahead of everyone else in mobile payments last week, and the answer should be both terrifying and heartening for other retailers. The coffee-house chain said its customers do 2.1 million mobile transactions at Starbucks every week—about 5 percent of all its sales transactions in U.S. stores.

That’s the terrifying part: No other brick-and-mortar retailer comes remotely close to those numbers in mobile payments. The heartening part: It’s possible. Despite all the wheel-spinning from PayPal, Google and Isis when it comes to getting customers to use mobile payments, it can be done. And it’s not something unique to Starbucks customers.

In the company’s earnings call on January 24, Starbucks CEO Howard Schultz ran through the type of numbers that most chains can only dream of for their mobile efforts: “Our Starbucks card is more popular than ever today, accounting for 25 percent of U.S. tender, and an increasing portion of Starbucks card transactions and sales are being paid by using our mobile payment apps, with mobile payments now accounting for nearly 20 percent of overall card transactions. Over 7 million customers now use one of our mobile payment apps, translating into 2.1 million mobile payment transactions each week, with hundreds of thousands of additional Starbucks mobile app downloads each week.”

It’s not hard to figure out why the Starbucks mobile effort is snowballing at this point. Once you’ve got millions of mobile transactions per week, customers see other customers flashing their phones to pay and the system sells itself to new users.

It’s also clear there’s nothing special about the Starbucks payment app, which is essentially a smartphone version of the Starbucks stored-payment card, along with a feature to add money to the stored-payment account from a credit or debit card. This is plain-vanilla mobile payment technology.

Nor is there any big secret under the covers. If there were, Safeway would know—it’s been handling the transactions for Starbucks kiosks in its stores for more than a year. There’s no indication Safeway has become any more savvy about mobile payments.

Lots of chains with zero mobile-payments success have customers as young and affluent as Starbucks, and those customers have the same phones, so that can’t be it.

True, Starbucks started trialing mobile payments in 2009, but by the next year it was expanding rapidly. Clearly, this shouldn’t be taking Google and PayPal so much longer to get results.

And although it doesn’t hurt that the Starbucks system is tightly married to its loyalty program, virtually every big mobile-payments approach is built around loyalty and CRM. That by itself hasn’t done the trick.

Then why is Starbucks so successful at mobile payments?

Pages: 1 2

Posted in CRM, In-Store, IT Strategy/Industry, Mobile/Wireless/Contactless, Payment Systems
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2 Comments | Read Starbucks Dominates Mobile Payments. Why Isn’t Anyone Else Even In The Game?

  1. A reader Says:
    January 31st, 2013 at 3:44 pm

    Starbucks is nothing like other retailers. Their typical customer interaction is: solitary customer orders a coffee, customer pulls out their phone, customer updates Facebook while waiting, customer heads to register and pays. The Starbucks app is conveniently in hand at exactly the right time in the process.

    By contrast, the typical shopper at another establishment is wrangling a cart full of thawing pizzas and a squirming toddler, or hanging up a gas pump hose, or chatting with their friends at a restaurant table. They don’t have their phone in hand, and have other distractions occupying their time. To them, a phone is inconvenient.

    A general purpose mobile wallet will probably never succeed. Starbucks mobile payments succeed only because of their unique situation, not because they did it ‘right’ or ‘better’ than anyone else like Isis or Google.

  2. Vancouver Starbucks Customer Says:
    January 31st, 2013 at 9:42 pm

    Starbucks success with mobile payments makes perfect sense if you consider the business. A lot of customers visit the store regularly and the payment amounts are relatively small. Why would customers want to have currency or incur small charges on the debit/ credit cards?

    It has also helped that they have been successful with their gift card program. Over the years I have received more than a few of them from friends.

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