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The Starbucks-Square Partnership

Ajit Deshpande - - 0 Comments

On August 9th, Starbucks announced a $25 million investment in Square at a valuation of $3.25 billion. A partnership was also announced wherein Square would process all Starbucks credit/debit card payments and wherein the approximately 11,000 Starbucks stores will become part of the Square merchant network. Howard Schulz, the CEO of Starbucks will be joining the Square board. This partnership represents a potentially huge transaction base for Square whose customers so far have predominantly been small and medium businesses. Square currently has a number of direct, cash-rich competitors such as PayPal Here and Intuit GoPayment.

Starbucks currently represents the largest mobile payments network in the United States. On a weekly basis, more than 30 million transactions occur at Starbucks stores, a number of them from individuals who are tech savvy and relatively ready for mobile payments. The network effects on having a Starbucks store in a mobile payment processor’s merchant network can be significant in terms of attracting nearby SMBs to sign up as well. All these benefits would make Starbucks a highly sought after partner. By not choosing to partner with cash-rich Paypal and by instead partnering with Square for a not too significant equity stake but with a board seat, Starbucks seems to be indicating both its commitment to participate in the evolution of mobile commerce as well as its strong desire to be an influencer in this evolution. It will be interesting to see whether this leads to a domino effect over the coming months to enable Square to become a highly profitable independent leader in the space.

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