Square today announced a partnership with Starbucks, that will both bring mobile payments via Pay with Square to Starbucks locations, and also see Starbucks processing credit and debit transactions via Square. As part of the deal, Square will also offer additional discoverability to its existing merchants by making the Square Directory available to Starbucks customers through Starbucks apps. Finally, Starbucks CEO Howard Schultz will also join the board and Starbucks will contribute $25 million in investment to Square’s Series D round, which it is currently in the process of raising.
This is a significant milestone for Jack Dorsey’s mobile payments company, and the founder illustrates exactly why in an open letter published on the Square site today. “By embracing Square, Starbucks has validated these ideas as powerful tools – not just for small businesses, but for smart businesses,” he wrote. That’s a strong declaration of a shift in focus for Square that’s been in the cards for some time now, and a Square spokesperson confirmed via email what’s already probably apparent: Square is now moving strongly into the territory of bigger business, whereas once it had focused exclusively on bringing credit card transactions to small and home businesses who previously dealt exclusively in cash.
For the mobile payments industry, that slight change in direction will have impact in virtually every sphere. It means that while others like PayPal, Intuit and VeriFone have been trying to encroach on Square’s lead among individual merchants, Dorsey’s company has been eyeing their big game and patiently planning a ground-up coup. Square seems to be intent on keeping its existing approach active, too, which is why it went out of its way to include the bit about Square Directory in its release, setting the stage for the argument that even as it works on deals with major brands, those will ultimately help, not hinder, the mom-and-pop businesses upon which it built its initial success.
Some might argue that splitting focus makes Square more vulnerable to competition aimed at its core business. LevelUp, for instance, recently dropped transaction fees in an attempt to broaden its appeal with small merchants. And while it’s true that it’s hard to argue against that as a value proposition on straight economic merits, Square still has a significant lead in terms of both adoption and brand recognition and trust thanks to its first-mover advantage. Plus, new offerings like PayPal Register help it become a solution that can grow with businesses, going from a simple dongle for a someone selling handmade furniture at a local fair, to a storefront point-of-sale solution when that same merchant gets his own storefront, to now an option that same entrepreneur can employ when he turns his business into a nationwide chain.
Square isn’t saying what kind of revenue agreement it’s worked out with Starbucks, and declined to comment on the matter via email, but it’s unlikely they’re looking at the same per transaction fees local merchants are working on. This kind of volume business should help Square’s negotiating position overall, though, which could eventually result in pricing benefits that trickle down to Square’s more modest users.
Square will still likely face lots of pushback from established industry leaders in the payment card industry (it already faced significant opposition from competitors like VeriFone before making this kind of blatant attack on their territory), but if it can offer large businesses the same advantages that won over smaller players, including transparent pricing, ease of use and a hassle-free customer experience, it could be on the way to becoming a leader not only in new markets, but in long-established ones, too.
