05/03/2014
How Do You Win The Mobile Wallet War? Be Like Starbucks.
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Starbucks Baristas in action
Your money is going mobile. Everyone, from Apple AAPL +0.62%, Amazon, Google GOOG +1.09%, eBay EBAY +1.23%, Square not to mention Visa and MasterCard wants a piece. And for good reason–as I wrote previously– research firm Gartner estimates that mobile payments will top $720 billion a year by 2017, up from $235 billion last year. The upside remains enormous: Humans made $15 trillion worth of retail transactions in 2013.
Tech companies are making moves to control the flow of bits and cash across a billion smart phones and at millions of online and physical locations. Ebay’s PayPal division has refreshed its entire technology platform, launched a new mobile payment app and is pushing to place its Beacon sensors in millions of shops to power hands-free digital payments.
PayPal’s got company. Google has launched a wallet product for its nearly billion Android and Apple has been able to use its retail stores as laboratories. It thinks it can convert its nearly 600 million iTunes customers to use the service offline and has slapped thumbprint readers on its iPhone 5s, with the idea of replacing credit card signatures. Amazon just announced that its developing a Kindle-based payment system to allow its 230 million customers to send money to each other and check out in stores.
But to see what this future mobile wallet world will look like, don’t turn to Apple, visit your neighborhood Starbucks SBUX +1.7%.
Starbucks’ mobile app is the most used digital payment app in America. About 10 million customers pay for their lattes with the app, making more than 5 million transactions per week. “Not only is it making it easy,” says Starbucks Chief Digital Officer, Adam Brotman. “It’s enhancing the experience and the relationship with the customer.”
Digital payments have little to do with actual payments. Credit cards and cash are easy and reliable. Replacing a card swipe with a phone tap isn’t an improvement—as PayPal president David Marcus says “that’s just technology for technology sake.” For mobile money to truly take off, it must offer more. “It has to be the experience you have online today,” says Marcus. “You’ll get what you want really fast, pay really fast and get out. And the merchant will know more stuff about you, and that will make your experience better.”
Starbucks has discovered how to make the experience better, at least for its coffee customers. Yes, the app let’s you pay with your iPhone, but it also enables customers to refill their Starbucks loyalty accounts with a few finger taps, offers instant discounts for free coffee or food and links to directly to Starbucks’ hot reward program in real time.
The reward program is a big draw. The app has gamified your morning coffee run. Each time you grab a grande you earn a digital star. Five stars get you to the green level, which is good for free refills and coupons. Collect 30 stars and you’re eligible for a free drink for every 12, plus more bonus offers. Like airlines, once you achieve VIP status, you’ll give your business to Starbucks any chance you get. The app makes the loyalty program even stickier.
Another advantage the app gives Starbucks is the built in inbox, which gives the company an exclusive, direct marketing link to customers. To keep people checking the inbox, Starbucks uses it to delivers digital goodies like free iTunes songs, e-books and apps weekly. “It gives us a tighter relationship with the customer,” says Brotman. “It’s a completely different dimension.” A dimension that 10 million customers love. Take note, tech world.
