Starbucks adopts Square for in-store payments, invests $25M

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Starbucks will soon begin processing all credit and debit card transactions using Square's mobile commerce technologies, a move to slash operational costs across the coffeehouse chain's 7,000 company-owned U.S. locations. Starbucks also will invest $25 million in Square's Series D financing round.

Beginning this fall, Starbucks stores will swap out their existing point-of-sale terminals in favor of Square, which enables businesses to accept credit and debit purchases by swiping cards through the startup's signature card reader, a small dongle that plugs into a smartphone or tablet audio jack. Square charges a flat fee of 2.75 percent on all transactions and promises users no contracts, monthly fees or hidden costs. As of June 2012, more than 2 million businesses and individuals are using the Square service, up from 1 million just six months earlier, with users processing more than $6 billion in payments on an annualized basis.

Starbucks CEO Howard Schultz, who will join Square's board of directors, told Reuters the new partnership will reduce payment processing fees, but he declined to specify how much the company expects to save. Schultz also declined to identify which transaction-processing firm Square will replace. Square co-founder and CEO Jack Dorsey similarly deflected questions on how much the company will charge Starbucks for each transaction, but said "Obviously, as you scale up you do see reductions in cost, and Starbucks is a very significant scale compared to a lot of other merchants in the world."

In addition to dongle-enabled card transactions, Starbucks customers will be able to purchase coffee and baked goods via the Pay with Square application, available for Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOG) Android. Pay with Square allows consumers to make purchases and settle tabs without ever removing their mobile device from their pocket or purse, leveraging geofencing technology to identify when a user's smartphone is within 100 meters of a participating merchant. Consumers who've opted into the service and attached a credit or debit card to their Square account can automatically open a tab with the retailer and complete the transaction simply by giving their name; the merchant version of Pay with Square also shows the user's photo to guarantee against fraud.

Starbucks also will continue to support its own Starbucks Card Mobile App, which connects iPhone, Android and BlackBerry devices to the consumer's prepaid Starbucks Card account, enabling users to pay for their order by holding their smartphone in front of a countertop scanner and processing the app's on-screen barcode. The mobile service is available across all company-operated stores in the U.S. as well as more than 1,000 Target locations, and it accounts for more than 1 million Starbucks transactions every week.

For more:
- read this release
- read this Reuters article

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