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Starbucks reaches 42M mobile payment transactions as app gains momentum

April 11, 2012

Starbucks’ mobile payments strategy continues to gain steam, with recent reports stating that the coffeehouse chain has processed 42 million payments processed via its mobile application.

Back in December, Starbucks reported that 26 million transactions had been processed via the mobile payments app since its January 2011 launch. The 16 million jump in transactions in just four months suggests that the app is growing at faster pace this year.

“Clearly the app is gaining momentum, coupled with the increasing penetration and familiarity that consumers have with smartphones,” said Nick Holland, senior analyst at Yankee Group, Boston.

“It is also noteworthy that the use of QR Codes here is picking up traction and clearly not requiring the market to wait for NFC to happen,” he said.

Starbucks did not respond to a request for comment.

Sheer simplicity
The Starbucks app for iPhone and Android devices lets customers check their balance, reload their card with any major credit card and view their transactions. The app features a consumer’s Starbucks card bar code that can scanned at the point-of-sale to make a purchase.

Some of the other mobile payments services utions currently in the market – such as Google Wallet – require the use of near-field communications technology.

However, because NFC is not widely available on smartphones yet, the exposure of these solutions is more limited for now.

In contrast, Starbucks’ use of more widely available and understood bar code technology is providing the coffeehouse chain with the momentum to build a significant presence in mobile payments.

“The initial success [of the app] could be put down to the Venn diagram of iPhone users and Starbucks customers — probably a very high degree of overlap in the early days of the app,” Mr. Holland said.

“Now, it’s the sheer simplicity of taking the payment on both sides,” he said. “Customer boots up the app, shows the QR Code, barista scans it, done.”

Other factors contributing to Starbucks’ success in mobile payments  include that coffee is a frequently purchased item and that customers are typically looking to get in and out of a store quickly.

Additionally, Starbucks already has a close relationship with many consumers who are members of its loyalty program and the app gives the company an opportunity to extend that relationship.

Building loyalty
Earlier this year, Starbucks reported that its mobile payment app is helping drive more frequent purchases, contributing to the company’s overall revenue growth and providing the brand with a competitive advantage.

At the time, Starbucks CEO Howard Schultz said the company is No. 1 worldwide in terms of mobile payment transactions and dollars (see story).

Starbucks recently enhanced its mobile payments strategy by making drive-thru payments available for the first time, extending its PayPal integration to Canada and revamping the app with new features such as social integration (see story).

With the success of Starbucks’ mobile payments strategy, other companies are beginning to investigate the bar code approach to mobile payments.

For example, the LevelUp app lets users link a credit card to the app, delivers a QR code that can be used to pay for purchases and lets users unlock special offers as they spend money at a retailer. LevelUp has signed up local merchants in cities such as San Francisco, New York, Boston and Philadelphia

“LevelUp is one to watch in this space,” Mr. Holland said. “Already in major U.S. metropolitan areas, slick QR code-based interface with the POS and a solid business case in terms of building loyalty and rewards.

“It could also expand to online commerce transactions as well,” he said.

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