Starbucks Looks to Share Its App Payment System With Other Retailers

Smartphone transactions supplied 15% of U.S. revenue in Q3

Starbucks CEO Howard Schultz revealed that his company had amassed nearly 12 million active monthly mobile users in the U.S. and Canada during the brand’s third-quarter earnings call on Thursday. While that might seem like chump change compared to Facebook’s 1.07 billion or Twitter’s 198 million monthly mobile users, Starbucks’ numbers are impressive for a retailer, especially given that many brands are reluctant to share data about their apps.

Starbucks’ mobile strategy leans on an app that meshes a loyalty program—dubbed My Starbucks Rewards—with payments. In exchange for paying with a smartphone, members earn rewards that can be redeemed for free drinks and food.

During the call, Schultz also said that transactions from this app brought in more than 15 percent of U.S. sales during the third quarter, equivalent to six million weekly transactions. The company has seen a small but consistent increase in mobile revenue each quarter for the past few years. Now, Starbucks is focused on rolling out new mobile features to avoid eventually hitting a peak in user growth.

"A prime example of this is our forthcoming mobile order and pay initiative that will allow customers to use their phones and MSR (My Starbucks Rewards) accounts to order ahead of arriving at a store where we plan to pilot in a major U.S. market later this year," said Schultz.

In January, rumors started swirling that Starbucks was looking to gain a stronger foothold in mobile by extending its loyalty program outside of its stores, and analysts got a better sense of what that may look like during yesterday's call.

Sanford Bernstein analyst Sara Senatore asked if the company was interested in working with retailers on digital and mobile initiatives that use Starbucks’ mobile payment technology. "We can tell you right now that we are in a series of very active conversations on this with both technology and financial services companies that would be potential partners here," said Matt Ryan, the chain's global chief strategy officer.

Starbucks could eventually start selling its mobile technology to other retailers that look to emulate its success. For example, a big-box retailer like Walmart could use Starbucks’ technology to power mobile payments within its app.

While Starbucks has proven digital chops, it’s unclear if the company could realistically compete with more established players in the mobile payment space. Forrester Research predicts that mobile payments will bring in $90 billion by 2017, largely driven by PayPal, MasterCard and LevelUp.

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