Starbucks’ App Provides Case Study for Mobile Payments

Starbucks launched its mobile payments app in January 2011 across almost 10,000 locations, one of the earliest and largest-scale rollouts of mobile payments in the US. To enable payments, the company linked its app to its existing stored-value Starbucks Card, which is tied to the popular My Starbucks Rewards loyalty program and was already a familiar payment method for customers.

It took nine weeks after the release of its own app to reach 3 million total mobile transactions; a little less than a year in, the app reached 26 million total mobile transactions. As of last Thursday’s earnings call Starbucks has 12 million mobile app users in the U.S. and Canada. That figure is up 20% or 2 million from the company’s Q2 earnings report. Starbucks processed six million (up 20% from Q2) mobile transactions per week in the U.S. during the third quarter, which ended June 29. Mobile payments accounted for 15 percent of Starbucks’ total U.S. revenue.

“Customers continue to embrace our industry leading mobile app in increasing numbers,” Starbucks CEO Schultz explained during the company’s third quarter earnings call. “By integrating mobile, loyalty, payment and in-store digital experiences, we are creating the game-changing technologies and experiences for our customers and the opportunity to introduce new lines of business for our company”.


How has Starbucks been able to succeed where so many have failed?

Starbucks noticed that more customers were choosing to buy their cup of coffee using card payment over cash, so they created an alternative and speedy payment method to make it even easier for them. So they used an existing loyalty card program familiar to consumers instead of trying to introduce a new payment method and new program all at once. They used their branded mobile app to offer a more personalized service, rewarding the most frequent customers with extra benefits, the introduction of one-touch mobile pay has seen them cut transaction times by approximately 10 seconds, reducing in-store queuing considerably. These choices not only provided complete control; they offered the ability to leverage the power of their brand to drive downloads.

This comes as no surprise to us. Mobile payments are being used for decidedly small-value purchases. According to our recent digital wallet survey, more than 75% of weekly digital wallet transactions are less than $10 with coffee/drinks/snack the most purchased items over the last 30 days.


So what’s next?

Starbucks revealed during the call that they will test an order ahead-and-pay feature in its app during the fourth quarter in a major U.S. city. They did not reveal much about white-labeling its mobile app and loyalty program to other retailers. Matt Ryan, global chief strategy officer for Starbucks, said that the company is in a series of active conversations with tech partners about such a program but did not go into details.


The future looks bright for Starbucks.



Jason Peaslee

Jason Peaslee is the Managing Partner of Thrive Analytics, a marketing research and analytics consulting firm. His career spans more than 20 years in marketing, advertising, product development, research, and business management. Before founding Thrive Analytics in 2010, he held several senior leadership roles at AT&T, Reynolds & Reynolds, Berry Network, & The Berry Company.

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