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Emerging Payments

Starbucks’ Loyalty Program Powers Its Mobile-Payment App

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Starbucks Corp.’s ability to integrate its closed-loop prepaid card with a loyalty program has helped drive customer usage of the company’s smartphone application to make mobile payments, notes one industry observer.

The coffee giant on Dec. 5 revealed its customers have initiated some 26 million mobile transactions since the application officially launched in January.

Seattle-based Starbucks saw 3 million mobile transactions in the first nine weeks of the program.

“Not only are they using their phone as a wallet, but as a connection point to Starbucks as they can manage Starbucks card accounts, send [electronic] gift cards and get into the holiday spirit with the Starbucks Cup Magic app,” Adam Brotman, senior vice president and general manager for Starbucks Digital Ventures, said in a press release.

Richard Crone, the chief executive of payments consulting firm Crone Consulting LLC in San Carlos, Calif., believes Starbucks’ mobile data results show how the company has redefined closed-loop prepaid.

“They have turned their closed-loop product into a personal-use card,” he says.

Crone adds Starbucks’ mobile app makes it simple to connect with the consumer to help drive transactions through loyalty offers and a store-location service.

“[Starbucks] can reach that customer before, during and after every transaction and that’s very valuable,” he says.

The app enables users to pay for purchases by displaying a bar code on their phone’s screen at checkout. The cashier scans the bar code, deducting funds from the customer’s prepaid Starbucks Card account.

Customers can manage their accounts using the same downloadable mobile app that generates the bar codes.

Starbucks declined to reveal specific dollar volume associated with mobile transactions.

Crone Consulting, however, independently estimates that in nine months since the release of the Starbucks mobile payment app, it now accounts for as much as 1% to 2% of total sales.

Starbucks recently said consumers loaded some $2.4 billion onto its loyalty cards during the fiscal year ended Sept. 25.

Some 3.6 million consumers are My Starbucks Rewards members, 2 million of which have gold-member status, the company said.

Starbucks’ success with bar-code technology also revisits the argument on how it compares with Near Field Communication-enabled mobile payments.

The company “didn’t have to wait for all the moving parts and have 14 different stars that had to be in perfect alignment in order to launch a payment system,” Crone says.

NFC still faces a business-model issue, such as who owns the consumer account and how transaction fees are shared amongst different players, industry observers have noted.

Starbucks in November announced plans to extend its mobile-payment app available overseas to the United Kingdom and Ireland on Jan. 5 (see story).

More than 700 Starbucks locations in the UK and Ireland will offer the mobile-pay capability. Starbucks has some 1 million loyalty cardholders in the region.

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