Starbucks is rolling out its mobile payment nationwide. You can now use an iPhone app to pay for your morning frappalatta.We think it could be a very big deal for mobile payments.
Because we’ve been waiting over 10 years for our phones to replace our wallets! That’s how long Japan has had near field communication (NFC) chips on their phones and that’s how long we haven’t had it in the West.
We think Starbucks’ nationwide rollout of mobile payments isn’t just a cool new thing for consumers, it could be the start of a big trend toward ubiquitous mobile payments.
Once people start paying for their frappuccinos with their iPhones, it’ll be regular consumers and not just geeks like us demanding to pay for everything with their phones. Other retailers will want to match Starbucks’ attention-grabbing initiative. And existing initiatives around mobile payments will get momentum.
A world where mobile payments finally become prevalent could potentially kill or change many companies’ business models and many sectors. These guys should be paying attention.
We covered how it works back in November when they did an experimental run in New York. You fire up the app, click to pay, and the app displays a barcode which you then hold up to a scanner at the register. The app is basically an interactive version of your Starbucks Card and so also tracks rewards and other stuff.
(Back when Starbucks were testing this, your barista had to take your phone and scan it, which we pointed out was annoying.)
PayPal is pushing really hard on mobile as its next huge market, and it has a well regarded mobile API. The Starbucks app allows you to pay with PayPal, so this is great for them in the short run.
But in the long run: what says people won't use PayPal, or their credit cards, or directly connect their checking accounts, or something else?
If they manage to stay at the forefront of mobile payments, this is a huge market for them. But that's a relatively big if -- if Starbucks or McDonald's payment app doesn't have PayPal, you'll still use it.
Dream with us here. Credit card companies are basically a cartel. They benefit from network effects that allow them to gouge merchants and consumers alike.
If they'd blessed NFC, we would all have cell phone wallets by now. But they're scared that mobile payments will replace them. After all, phone payments are even more convenient and secure than plastic payments.
If Starbucks gave you a $20 voucher to connect your checking account to your payment app, would you? Would that be totally worth it to them over time in reduced credit card fees? Are the people at Visa and MasterCard panicking yet?
If so, hopefully they're right to.
Google is experiencing with using NFC for mobile payments on Android phones. The problem with NFC is that you need to outfit zillions of merchants with devices that can read NFC and integrate it, but if anyone can spend the amazing money and marketing effort to do that it's Google.
The Starbucks initiative gives huge momentum to that idea, because other bricks and mortar businesses are going to pay attention.
If every Android phone becomes a wallet that you can pay for lunch and groceries with -- that's it. Other phone makers will have to catch up and we'll finally be able to pay for stuff like this is the 21st century.
(It would also be a disaster for PayPal, since this would rely on Google's struggling payments service Checkout.)
The business potential of Foursquare and other location-based social networks is to replace store loyalty cards and help companies manage their loyalty programs.
But if Starbucks and other big chains have payments apps, well, that's already your loyalty card. All of a sudden, Foursquare makes much less sense.
This is particularly relevant for Starbucks as they and Foursquare have been partnering over mayor discounts for a while now.
There can be upside for Foursquare if Starbucks integrates Foursquare in their app, but over the long run Starbucks might not need Foursquare to push specials and offers to customers.
Shopkick is a nifty app that gives you rewards for walking into the store and pushes discounts to you for scanning barcodes and doing other things.
Again, why should Starbucks (or Best Buy or Ikea) pay money to Shopkick to do that if they can do it through their payments app?
Jack Dorsey's really cool payments company Square relies on a dongle you plug on your iPhone and your iPad to take plastic payments. Square also promises to replace your store's loyalty card by tracking payments.
In other words, Square wants to do everything that the Starbucks app does, but less conveniently.
Square is more aimed at small businesses than companies like Starbucks, but if some form of mobile payment, whether via NFC or barcode scanning or something dongle-less, becomes standard, Square is useless. We think Square will have to ditch the dongle at some point anyway.
Venmo wants to own small person-to-person transactions by letting you text money to your friends (text something like 'pay joe $5 for coffee') and adding a social layer but they're also clearly banking on small businesses to use their platform. So they have some differentiation, but this might make life harder for them.
FaceCash wants to get traction with retailers by being more secure since it displays your face along with a barcode to make you pay. This looks like a feature Starbucks and others could copy.