The big Starbucks deal was a disaster for Square

Back in 2012, Starbucks and payments processing startup Square looked like a match made in heaven.

Starbucks wanted to add mobile ordering to its smartphone app portfolio, and tapped Square for its expertise.

And on the backend, every card swipe at Starbucks was processed by Square, which the coffee chain claimed was a huge cost savings versus its existing partnership with Bank of America.

But in late 2014, Starbucks discontinued most of its app partnerships with Square, opting instead to bring development in-house. And market analysts were whispering that Square only managed to entice Starbucks over to its platform with seriously discounted rates that it hoped to make up for in volume.
Now, with Square finally filing to go public today, we can see the numbers that prove that this dream deal was more like a nightmare, as the startup moves to distance itself from the deal.
In 2014 alone, Starbucks transaction revenues with Square were $US1.23 million — but that revenue incurred almost $US1.51 million in transaction costs. In other words, Starbucks is costing Square more money than it makes. Still, it’s identified as a risk factor in those filings because it hurts Square’s revenue growth.

Square is rapidly distancing itself from the coffee chain, too.

Square has already let Starbucks out of its contract, which was supposed to last until October 1st, 2016, a full year early. Ahead of that switch, Square dropped Starbucks’ exclusivity contract this past August, meaning it was free to find another payments processing solution.

The filing indicates that Square will not be renewing that contract when it’s officially up next year, and Starbucks will be moving to another payments processor solution sooner rather than later. In the meanwhile, Square is looking to make up for lost time, or at least revenue:

“Starbucks also agreed to pay increased processing rates to us for as long as they continue to process transactions with us,” Square said in its IPO filing.

NOW WATCH: Starbucks now has an order ahead feature on its app but it totally failed when we tried it

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