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Starbucks and Apple: Mobile payments’ sleeping giants?

With Starbucks looking to bring its mobile payments platform to other retailers and the rumor mill around an Apple mobile payments solution kicking into high gear again, the mobile payments wars may just be beginning.

Starbucks said last week during a conference call with analysts to discuss its third quarter financial results that it is in active conversations with technology and financial services companies to help the coffee house chain bring its app payment system to other retailers. Also last week, reports suggested that Apple is talking about mobile payments with Visa and other credit card companies, suggesting that the company’s long-rumored play here could be imminent.

“Apple has a much more significant role to play than Starbucks,” said Drew Sievers, former CEO at mFoundry and now founding partner at fintech investor Operative Capital. “There is no comparison.

“Apple controls hundreds of millions of cards and devices that can be linked to those cards,” he said. “They are perfectly positioned to be a key player in the space.

“Starbucks has a successful program, but ultimately, they are a competitor in the retail space with many people and this is not their core business.”

Selling technology
Starbucks is clearly one of the big success stories in mobile payments so far, with nearly 12 million active monthly mobile users in the United States and mobile payments now accounting for over 15 percent of transactions in company-operated stores.

However, translating this success into a technology platform for other merchants could be a challenge.

While selling a technology platform requires a much different skill set than selling lattes, it is not an unprecedented move for a retailer to try to do so.

Apple’s Passbook loyalty app

For example, in the early days of the Internet, Amazon leveraged its success online to build ecommerce sites for Borders and others. As ecommerce became a bigger and more important part of retailers’ businesses, they let their relationships with Amazon lapse so they could build their own sites.

One challenge that Starbucks faces is that many of the biggest merchants have formed a payments consortium, MCX, and are working on bringing out their own mobile solution.

However, it is possible that retailers have bitten off more than they can chew – building a mobile payments is a notoriously complex undertaking that has challenged big companies such as Google and AT&T – and would welcome having a chance to leverage Starbucks’ platform. This is because Starbucks mobile payments and loyalty framework has proven that it is scalable.

Familiarity a plus
While others payments platforms such as Google Wallet and Isis are struggling to gain merchant and consumer adoption because they are not available on enough phones and many merchants still do not have the necessary hardware in place to process payments with these platforms, the Starbucks model is already familiar to many consumers and is easy to use, requiring the merchant to scan a QR code on a phone’s screen.

Merchants could also be attracted to how Starbucks’ model is tightly integrated with loyalty, enabling users to earn and redeem rewards.

Apple has been proceeding cautiously into mobile payments, in part because this is what it does. The company has a reputation for watching others spearhead the development of new technologies and then coming in with a beautifully designed, consumer-friendly option.

Apple may also be watching Google’s and Isis’ struggles and waiting for the payments market to develop more before it jumps.

Apple shines
There is wide consensus that if and when Apple does make it a move, it will quickly become a significant player. This is because Apple already has credit card account data on file for millions of consumers through iTunes.

Additionally, Apple’s mobile loyalty app Passbook has gained some steam over the past couple of years, with both merchants and consumers adopting it.

A recent survey from Thrive Analytics found that 17 percent of consumers have used Passbook and that Passbook is used more on a weekly basis, with 60 percent saying they use Passbook weekly compared to 49 percent for Google Wallet and 40 percent for PayPal (see story).

“Starbucks’ solution works because they have a very unique combination of smartphone toting, caffeine-addicted customers who are willing to lend them money for their addiction,” Mr. Sievers said. “They would do well to remember that just because they are having success doesn’t mean that they are remotely qualified to power any other merchant’s solution.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York