The Campaign to Digitize Your Wallet Is Intensifying
By Brian X. Chen, NY Times, August 9, 2012
This week, Starbucks joined forces with Square, a technology start-up that lets you pay for things with a smartphone. Coming from a company whose cafes seem to be on every corner, that’s a powerful endorsement. Does that mean your phone will soon replace your wallet?
That’s hardly certain, because any company offering mobile payments faces a big challenge: convincing people that paying with a phone is safer and more convenient than using cash or a credit card.
But the partnership will clearly give a lot more exposure to Square, a company in San Francisco with about 300 employees, and to the idea of mobile payments in general.
Square isn’t yet near getting the big numbers it needs to become a mainstream replacement for the wallet. To date it has 75,000 merchants using its technology to accept payments. It refuses to disclose the number of consumers using its Pay With Square app, presumably because there aren’t enough to brag about.
“The biggest friction has been places to pay,” said Jack Dorsey, the founder of Square, in an interview. He said that with so many different companies trying to get a piece of the market, paying with a phone has been a “fragmented” experience. But the Starbucks partnership should widen the use of Square specifically, he said.
Indeed, businesses of all kinds, including big companies like Google, Microsoft and Sprint and small start-ups like GoPago and Scvngr, are hoping to profit from mobile payments—if only they can figure out what kind of system appeals to consumers and merchants.
Google has developed a mobile wallet app that uses a technology called near-field communication, which allows a phone to communicate wirelessly with a nearby cash register. GoPago has an app that lets customers place an order before arriving in a store; it shows up on a tablet on the merchant’s counter. Square offers businesses software for the iPad that shows pictures of nearby customers who are using the Pay With Square app on their smartphone, so all they have to do is state their name to pay for an item.
Starbucks stores will begin accepting a less ambitious form of Square payments this fall, when customers will be able to show a Square bar code on their smartphone at the register. The companies expect 7,000 Starbucks stores in the United States to be hooked up to the new system before the holiday season.
Starbucks has already been accepting mobile payments through its own bar code app. With one million app transactions a week, Starbucks is the most successful example of mobile payments to date, according to Denee Carrington, an analyst at the research firm Forrester. She said the partnership should make Square the biggest player in mobile payments.
“They’ve been working with the moms and pops of the world, small coffee shops and that kind of thing, but this certainly gives them another level of presence in the market,” Ms. Carrington said. “Now in addition to the neighborhood coffee shop, they’ll be at every corner of New York City.”