How Starbucks made mobile payments mainstream

Mobile payments for physical goods are on pace to eclipse a gross merchandise transaction value of $170 billion worldwide by 2015, almost triple the $60 billion forecast for 2011, according to a Juniper Research forecast issued in October. You can expect any number of twists and turns as the market evolves between now and then, although few developments are likely to generate headlines on par with what transpired this week after Verizon Wireless (NYSE:VZ) confirmed reports it will ship the Android-powered Galaxy Nexus smartphone without preloading the fledgling Google (NASDAQ:GOOG) Wallet tap-and-pay application.

Verizon Wireless--which is partnering with AT&T (NYSE:T) and T-Mobile USA to mount Isis, a rival Near Field Communications-enabled m-commerce network slated to begin commercial trials in early-to-mid 2012--quickly shot down rumors it plans to block Google Wallet outright, instead maintaining it will take a wait-and-see approach to supporting the application. "Google Wallet is different from other widely-available m-commerce services," Verizon Wireless spokesman Jeffrey Nelson said in a statement. "Google Wallet does not simply access the operating system and basic hardware of our phones like thousands of other applications. Instead, in order to work as architected by Google, Google Wallet needs to be integrated into a new, secure and proprietary hardware element in our phones. We are continuing our commercial discussions with Google on this issue." (Google's take: "Verizon asked us not to include [Google Wallet] functionality in the [Galaxy Nexus]," the company said in a statement.)

The battle for mobile payment supremacy certainly won't end here. To understand the stakes involved, look no further than Starbucks, which in less than a year's time has ushered the concept of paying via mobile app into the consumer mainstream. Almost 12 months after launching m-payment services across its 7,000 company-operated U.S. stores and more than 1,000 Target locations, Starbucks reported this week that consumers have already completed more than 26 million mobile transactions. The coffee giant's Starbucks Card Mobile App enables iPhone, Android and BlackBerry users to pay for their order by holding their handset in front of a countertop scanner and processing the app's on-screen barcode--within the first nine weeks of the program, introduced in January 2011, consumers funded 3 million transactions via smartphone, and during the nine-week period beginning this October, customers completed 6 million mobile transactions.

The Starbucks Card Mobile App user experience isn't dramatically different from what Google Wallet delivers and Isis promises. The application links directly to an approved payment source--in this case, the customer's prepaid Starbucks Card. Customers loaded $2.4 billion to their Starbucks Card accounts in 2011, and the cards are now used to fund one in four Starbucks transactions in the U.S. (The company adds that smartphone owners have reloaded $110.5 million onto Starbucks Cards directly through the mobile interface.) The Starbucks Card Mobile App also incorporates bells and whistles like account management tools, balance checks and My Starbucks Rewards status updates--there's even a feature to help locate nearby Starbucks locations. But the app is first and foremost about cashless convenience, which is why it's gained traction so quickly. In effect, Starbucks has proven consumers can and will leverage the mobile payment solutions available to them, and that's an enormously positive precedent for Google, Verizon Wireless, their financial services partners and anyone else making significant bets on mobile commerce's future.

The question is what will happen to the Starbucks Card Mobile App once Isis goes live and Google Wallet expands across more Android smartphones. Will users abandon the Starbucks app in favor of mobile payment options they can use at other retailers and restaurants, or will they continue to favor the experience of a dedicated application that encompasses all facets of the Starbucks customer experience? Will Starbucks even support rival mobile payment approaches, for that matter? It's still too soon to figure out who will cash in on mobile payments over the long haul, but a massive payday awaits.--Jason