550 Morninghome Road - Danville, CA 94526
(925) 314 - 9700

Starbucks, Siding with Apple, Shows an Unexpected Mobile-Pay Rivalry

Starbucks’ decision to support Apple Pay within the coffee chain’s mobile payment app seems like a natural alliance of two major forces in mobile payments, but it raises a significant question: Why not do the same with Square, with which Starbucks has much deeper ties?

Starbucks invested $25 million in Square in 2012, began using Square for processing, placed the coffee chain’s CEO on Square’s board and accepted the now-defunct Square Wallet in its stores. Some elements of this relationship faded over time, but this is not a story about Starbucks’ falling out with Square.

It’s a story about Apple’s transformation from an enabler to a rival of the very mobile payment systems that thrived on iOS devices for years.

There were hints of this well ahead of the formal launch of Apple Pay. In 2013, Apple publicly floated the idea of replacing its standard headphone jack with its proprietary Lightning port, a move that would undermine Square and any other mobile point of sale vendors that use the jack to connect its mobile card reader to an iOS device.

In another example, Apple initially allowed the telcos’ Softcard mobile wallet to function on its phones through add-on hardware, and Softcard was optimistic that it would be granted access to the iPhone 6’s Near Field Communication hardware. But such an agreement never materialized, and the iPhone was removed from Softcard’s list of supported devices.

Starbucks added Apple Pay to its iOS app this week, but the move was telegraphed months ago when Apple listed Starbucks as one of its early supporters.

Apple Pay’s presence in the Starbucks app is “about Apple Pay being in a position that they need to convince retailers that it is worthwhile to integrate into their apps and at NFC terminals,” said Gil Luria, analyst with Los Angeles-based Wedbush Securities.

Neither Apple nor Starbucks responded to inquiries by deadline. Square, which still processes transactions for Starbucks and still counts Starbucks as an investor, declined to comment.

Within the Starbucks app, Apple Pay functions as a funding mechanism to reload a Starbucks stored-value account. Instead of linking a payment card to the app, users can access whichever card is already linked to their Apple Pay account.

“Starbucks’ payment app is seamless, but in order to make the application work, there’s the additional step of loading money onto the account,” industry analyst Paul Martaus noted in an earlier interview.

Starbucks also supports Apple’s Touch ID fingerprint security, a move that may appease any consumers who remember the coffee chain being taken to task last year for storing users’ personal information and passwords in plain text.

The update also gives Starbucks a glimpse at how many of its patrons use Apple Pay.

Starbucks’ support of Apple Pay’s in-app model sets the groundwork for its acceptance of Apple Pay’s NFC model when the retailer has the proper hardware in place, Luria said.

The move to add Apple Pay in the app comes only two months after Starbucks revealed it would not use Square Order as part of its mobile order-ahead app. Starbucks earlier faced issues withaccepting Square Wallet, the predecessor to Square Order. Starbucks also removed its CEO, Howard Schultz, from Square’s board in 2013; the companies stated at the time that Schultz’s term on Square’s board had always been intended to last about a year.

Starbucks revealed last October that of the $1.3 billion in payments made over mobile devices throughout the U.S. in 2013, more than 90% took place in Starbucks stores.

A partial list of clients served