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Video thumbnail for youtube video Is this how you'll buy your next cup of Joe? Square mobile wallet arrives at 7,000 Starbucks stores

Two years ago, Starbucks promised to change the way people pay for coffee when it invested $25 million into Square, the hot San Francisco-based mobile payments startup.

But today, the joint venture between the two companies is running out of steam. Recode’s Jason del Rey provides a well-written report on what’s next for Square, which at one point seemed unstoppable when its valuation surpassed $3 billion.

Howard Schultz (Flickr photo via Richard Eriksson)
Howard Schultz (Flickr photo via Richard Eriksson)

Now, Square, which was founded by Twitter’s Jack Dorsey, is likely putting its IPO plans on hold and is having to consider all options, including a sale to another company, he writes.

One of the central themes of the report is how the company has failed to generate revenue from products beyond payment processing — a world already dominated by giant incumbents and digital behemoths, like PayPal. Starbucks was supposed to a key partner in those efforts, and Howard Schultz was supposed to play a role in advising Square, as a member of the company’s board.

But a year into the company’s investment, Schultz left Square’s board, and not much has materialized from the joint venture since. (The stint reminds me a little bit of Schultz’s 16-month board seat on Groupon.)

Del Rey points out how the arrangement between Square and Starbucks failed to move the start-up forward on many counts, even if the arrangement still made financial for Starbucks.

Here are the key points:

— The arrangement consisted of Square processing payments for debit and credit card purchases at Starbucks; Starbucks would invest $25 million and Schultz would join the board.

— Starbucks benefited because Square would charge a lower processing fee than what it had been paying.

— Square was hoping to get several things out of the deal, such as Starbucks getting its customers to sign up for the Square Wallet; Square potentially converting its registers over to Square’s point of sale software and hardware, which could lead to other deals with other big retailers.

But two years into the deal, Square has failed to convince the major coffee chain to use any more of its technology, and Schultz has apparently moved on to other interests as demonstrated during the company’s recent shareholder meeting.

On March 19, Starbucks’ Chief Digital Officer Adam Brotman took the stage at the annual shareholders meeting to say that the Seattle coffee giant was just getting started in the digital world, but not once during the meeting did Brotman mention Square by name.

“If you are impressed so far, I promise you, you haven’t seen anything yet,” Brotman told shareholders. “We have a robust pipeline of digital and mobile innovations coming down the pipe.”

Brotman bragged that more than 14 percent of all Starbucks transactions in U.S. stores are now made with a mobile device and that there were 5 million mobile payments made in stores in one week alone.

A Starbucks spokeswoman said she didn’t have anything additional to share, and recommended connecting with Square for comment. A Square spokesman did not immediately respond to an email seeking comment.

In short, dealings between the two companies seem to have ground to a halt.

Update: A Starbucks spokesperson has sent me a comment to let me know that it is not correct to say that the two companies’ dealings are over, “when, in fact, Square remains an important strategic partner for Starbucks and we continue to partner together on initiatives stemming from our original agreement.”

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