That accounts for 16 percent of all transactions at its coffee shops and, the company says, meant it transacted 90 percent of all of mobile payments in the entire U.S. in 2013.
The company’s slice of the national mobile payments market is sure to dip in the years ahead as other retailers start catching up to Starbucks, in part thanks to the recent launch of Apple Pay, but Starbucks says it sees no slow down in consumer adoption of its mobile payments technology.
Starbucks has integrated payments into its its own app, which allows customers to keep a prepaid Starbucks card on their phone, enabled with automatic refills when it gets low on cash, and keep a list of favorite drinks to make ordering easier.
Starbucks has apps for both Apple iOS and Android devices. On iOS, the prepaid Starbucks card is integrated with the phone’s Passbook digital wallet app.
“What you’re going to see in the years ahead will be a rapid acceleration in mobile device purchases and a continued significant migration away from bricks-and-mortar commerce,” said Howard Schultz, CEO of Starbucks, in a conference call with investors.
Schultz said mobile users represented “a huge prize” for retailers and financial services companies and that’s why there is so much interest in the sector.
“That’s why every tech and financial service company in the world is today chasing the mobile payment opportunity,” he said. But he said that while Starbucks doesn’t have the hardware and software expertise of competitors, it has managed to do something that its competitors, so far, haven’t: change consumer behavior.
“We’ve accomplished this by integrating the convenience of mobile payment to a compelling and enjoyable program that gives our customers rewards,” he said.
Visa Inc, the world’s largest credit and debit card processing network, is designing a digital wallet that people can use to pay for things on the Internet or with their phones instead of with traditional plastic cards.
The network said on Wednesday it is collaborating with several large U.S. and international banks to create the wallet. Its partners include US Bancorp, PNC Financial Services, Regions Financial, BB&T Corp, Toronto Dominion’s TD Bank and the U.S. arm of Barclays PLC.
The “digital wallet” will store the banks’ customers’ credit and debit card account information, both for Visa cards as well as other cards. People can use the wallet to pay for things online or in stores, Visa said.
The network will also have to convince merchants to put a new “one-click” button on their websites, so that potential customers can use their Visa digital wallets to buy things by clicking the button instead of by manually entering all of their account information every time they want to make an online purchase.
Banks, mobile phone operators and networks like Visa are all trying to gain territory in the small, but high-potential market for U.S. mobile payments. Last week Isis, a separate mobile payments venture run by three of the top four U.S. carriers, said it had modified its initial goals and was now open to working with Visa and MasterCard as it introduces its own mobile wallet.
Jim McCarthy, Visa’s head of global products, told Reuters in an interview on Wednesday that mobile payments in the United States “will more easily take off” from people using their smartphones’ browsers to buy things online.
But Visa and its rivals, including MasterCard Inc, American Express Co and Discover Financial Services, are also trying to figure out ways for people to buy things with their phones in physical stores. McCarthy said that a previous, separate Visa pilot to test smartphone payments with Bank of America Corp and other large U.S. banks will be commercially available this summer.
Visa plans to introduce the digital wallet in the United States and Canada in autumn of 2011.
Three of the four largest mobile phone carriers in the U.S. have formed a joint venture to turn phones into digital wallets, allowing subscribers to pay for groceries and other retail items using their phones, instead of credit cards or other methods.
AT&T Mobility, Verizon Wireless and T-Mobile USA, with a combined 220 million U.S. customers, announced Tuesday that they have formed the Isis mobile commerce network, with service expected to roll out in some markets within 18 months. The network, based on open standards, will welcome any mobile carriers, banks and retail outlets that want to join, said Michael Abbott, Isis’ CEO.
The goal of the new service is to “fundamentally transform” the way people shop and pay for items, said Abbott, a former chief marketing officer at GE Capital. Instead of fumbling for a credit card, coupons and loyalty card at a grocery store, a customer will be able to swipe their mobile phone to deliver all that information, he said. In return, stores can deliver coupons back to customers.
“We’re painting a vision of the future; we’re pulling this together,” Abbott said. “It’s all about simplifying the consumer’s life.” Barclaycard US has signed on to issue credit accounts through Isis.
Isis will use (NFC) near-field communication technology, which allows wireless data exchange within about 4 inches of a phone and reader. NFC has been around since 2003, with the NFC Forum announced in March 2004, but the technology has been slow to catch on in the U.S.
The backing from Verizon, AT&T and T-Mobile will give the technology a critical mass that will encourage retailers to purchase NFC readers, Abbott said. The partnership “brings the scale the industry needs to drive the investment going forward,” he said.
Several retailers have already signed on to Isis, although the names are not yet available, Abbott said.
In addition, Google CEO Eric Schmidt announced Monday that the next version of its Android mobile OS will support NFC, and Nokia has announced plans to integrate the technology into a number of its Symbian-based smartphones in 2011.