Square's diversification strategy has landed in coffee shops, as the company has upgraded an application that uses location-sensing technology to more closely match pre-order preparation with consumer arrival.

"Sometimes you can't get out of a meeting or you're on the phone, so you can't make it to the coffee store by the set time from the pre-order," said Semonti Stephens, a Square spokesperson. "And by the time you get there, the coffee is cold."

Square has updated its Square Order app to track users as they approach a store, and alert the store to start working on the order that the consumer has pre-entered. It's designed to be an upgrade over pre-ordering for a specific time. Square has chosen coffee as an initial product for the update because of the difficulty in executing pre-orders for a specific time.

"Coffee has been pretty hard to do for pre-ordering. It's a sensitive item that needs to be fresh and hot," Stephens said. "This feature puts the ordering entirely on the buyers' schedule."

To use the feature, coffee shops set preparation times for items. Square uses geo-fencing technology to recognize when the user is near the store. After picking up orders, consumers also pay via the app and do not have to swipe a card.

And as consumers use the feature more frequently, the app will store preferences, and suggest orders based on past transactions, which is an attempt to reduce navigation. The new coffee feature also includes an integration with Square Register. Orders will arrive on Register, or will be printed out as an order ticket.

The feature is starting in New York and San Francisco, and Square plans to expand the service to other markets. Square also plans to add other customer experience enhancements to Square Order over time, Stephens said.

Blue Bottle Coffee is one of the first adopters of Square's new feature, which will be aimed at coffee shops and chains of all sizes. Starbucks has made an investment in Square, but has generally not used Square's technology to directly accept payments. 

"We would love for Starbucks to join Square Order but that is a question for Starbucks," Stephens said.

Starbucks, which has one of the most successful mobile payments programs, did not return a request for comment by deadline.

Square, which recently closed a round of funding from Singapore-based investors at a $6 billion valuation, is diversifying its product mix to add more merchant services to its traditional mobile payments acceptance product as competitors such as Apple Pay, Amazon and PayPal encroach.

"We're going to be building on top of [the pre-ordering feature] and will add more features this year and into next," Stephens said.

Coffee is also proving to be a major entry point for mobile payments, since it fits well with how consumers order and buy the product.

"While all of the payment firms and tech companies were trying to figure out how to deploy a mobile payment strategy, Starbucks quietly emerged as the wunderkind of mobile payments," said Nathalie Reinelt, an analyst at Aite Group. "In part this has to do with the amount of repeat foot traffic that coffee shops inherently have, which creates a unique opportunity to instill a pattern of behavior relatively quickly."

Coffee is driving mobile payments, and that's apparent through Starbucks and some others, said Jacqueline Chilton, retail and payments consultant for Yountville, Calif.-based Muration Group during this week's Mobilizing Retail conference in Chicago. "All merchants are different, and they have to ask if they feel they have the brand to pull customers in with mobile payments. And then they have to determine how important it is for their business model to have tap-and-go or order ahead payments," Chilton said.

Low-value payments on items that consumers seek daily, like their morning coffee, have proven to be the best fit for the speed and ease-of-use that mobile wallet providers are emphasizing for consumers, Chilton added.

"Coffee is a good entry point for mobile payments. It's a habitual order and it's something that you do out of habit," Stephens said. "This is an area where we can make the process more seamless and easy."

David Heun contributed to this story.

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