The annual Red Cup tradition has returned to Starbucks and no Monday morning would be complete without a giant cup (or two) of coffee. With a Starbucks on nearly every corner on my walk to work, it’s easy to order on my mobile app, walk up to a counter, and pick up my paid-for beverage. Starbucks was an early adopter of mobile payment systems and it has proven to be a successful model for their business; but retailers wonder: how can mobile processing systems work for me?
25-percent of Starbucks purchases come through mobile payment systems
Starbucks has reported that one-fourth of their transactions were via mobile payment systems, up from 20% this time last year. The Starbucks mobile pay option was responsible for 7% of transactions with 3,300 chain locations handling 10% of orders at peak times for customers who prefer to use mobile payment systems. In 600 of the brand’s top locations, 20% of peak transaction is mobile order and pay.
Kevin Johnson, Starbucks president and COO, said that “the data shows that mobile order and pay is making a difference for both our partners and our customers.” Johnson said that new features to the order and pay application are coming soon, which will include real-time personalized product suggestions and the ability to save your order. Johnson also added that mobile ordering “provides a simple, elegant ordering experience enabling convenience when they want it and it rewards them with stars along the way.”
Retailers not too keen on Starbucks model of mobile processing
On the contrary, many retailers are not as fond of mobile processing as Starbucks and have rejected this particular mobile processing solution as an option. With the Starbucks model, the payment occurs on a gift card. Retailers, while seeing the value for Starbucks, also push private label solutions. This means that retailers are looking for total ownership in taking payments. Take Kohl’s for example. Their company wishes to remain competitive with retailers like Amazon that provides the top online shopping solution that is competing with brick-and-mortar retailers. Retailers want ownership over their apps, instead of the Starbucks model that’s simply tied to a bank account or gift card.
Steve Mott, principal of BetterBuyDesign, a consulting firm, says that this is a healthy era for large retailers. Small retailers are facing rising interchange rates, but he says that’s the nature of a free-market, capitalist system. Co-branded credit cards represent 30% of total card payments with private-label cards around 10% of the payments card business. The private label incentive for retailers is that processing costs are much lower than standard credit card use at your retail location. Still, businesses recognize that mobile payment systems are a part of the future of retail.
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