Starbucks is partnering with Square to process transactions in its stores, and investing $25 million in the mobile payments company — promising to change the way people pay for their coffee and dramatically increase the footprint of the San Francisco-based startup.

The companies announced the deal tonight. Howard Schultz, the Starbucks CEO and chairman, will join Square’s board as part of the agreement.

Starting this fall, company-operated Starbucks stores in the U.S. will begin accepting payments from the “Pay with Square” app, which links to the user’s credit card and lets them pay by app. Capabilities of the app include automatically opening a digital “tab” in the app when walking in the door of a participating store.

The New York Times explains how the process will work.

At first, Starbucks customers will need to show the merchant a bar code on their phones. But when Starbucks uses Square’s full GPS technology, the customer’s phone will automatically notify the store that the customer has entered, and the customer’s name and photo will pop up on the cashier’s screen. The customer will give the merchant his or her name, Starbucks will match the photo and the payment will be complete.

Presumably all of this will be opt-in, with privacy safeguards. If all else fails, it promises to be a high-profile and large-scale test of consumer desire for a digital wallet.

In addition, Starbucks says Square will process its U.S. credit and debit card transactions. Starbucks will get lower payment processing costs, and Square will get massive scale.

Square CEO Jack Dorsey, who is also the Twitter co-founder, tells Reuters in an interview, “Obviously, as you scale up you do see reductions in cost and Starbucks is a very significant scale compared to a lot of other merchants in the world.”

Schultz says in a news release, “Both Starbucks and Square take a similar approach when building products and running our businesses, and together we can bring the best possible payment experience to Starbucks customers.”

Comments

  • http://twitter.com/thedustball thedustball

    I’d be all over using this if it in some way integrates with their current app. All sorts of benefits of paying through that app that I don’t see called out as being integrated here (free syrups, free drinks, music downloads).

  • Guest

    Huge news. Huge. Squarebucks just legitimized the mobile payments business. Absolutely awesome.

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