Starbucks recently announced a partnership with mobile payment network Square. Under this arrangement, customers can pay through Square’s app, Square will process Starbucks’ transactions, and Starbucks will invest in the start-up’s next round of funding.
Square currently competes with another mobile payment start-up LevelUp; Square charges a 2.75% interchange fee to all businesses who use their app, while LevelUp provides swipes to businesses for free. So why choose Square?
I actually compared LevelUp and Starbucks’ mobile payments system before Starbucks announced the deal with Square, here.
LevelUp’s model centers on providing customer information and increasing customer retention by rewarding purchases. LevelUp then charges a fee for providing new customers and encouraging return.
Starbucks’ mobile payment app already provides the business with excellent customer information: every purchase made links to a customer’s account. The Starbucks reward system can actually serve as a conversation piece: people love seeing the gold star appear on their mobile screen and eventually collecting their free tall bold (or Pike’s, or blonde).
Given the legendary loyalty of the average Starbucks customer, it is likely that Starbucks would pay much more with LevelUp than with Square’s interchange fee. LevelUp should remember that it is possible to price loyalty such that more customers means less profit.