Starbucks ‘Mobile Pay’ Is a Huge Hit, but There Is a Better Way

Starbucks 'Mobile Pay' Is a Huge Hit, but There Is a Better Way

Starbucks has been extremely successful with its mobile payments platform, Venture Beat’s Jennifer Van Grove reminds us today. The coffee chain has processed more than 42 million m-payment transactions since its Mobile Pay platform was launched in January 2011, Van Grove tells us. Back in December, Starbucks reported that “there have been 26 million mobile transactions to date,” so evidently the growth rate is accelerating.

As regular readers know, we have been covering the latte maker’s progress on the m-payment front since its platform was still in a test mode a year and a half ago and have praised it for its simplicity. And yet, we always felt that Starbucks’ Mobile Pay was not the most consumer-friendly way to do mobile payments. In our very first post on the topic, we asked:

Would you want to have to use a separate app for each retailer and provide sensitive personal information over and over again?

Well, just as it was the case in November 2010, the answer to this question today is unequivocally negative.

Starbucks Mobile Pay

Mobile Pay’s success is in large measure due to Starbucks’ decision to build their m-payment platform around an existing and distinctly unglamorous technology. At a time when the near-field communication (NFC) technology was all the rage and seemingly everyone started building digital wallets around it, Starbucks chose to rely on the far more prosaic 2-D scanning devices that they already had deployed in their stores and linked to the point-of-sale (POS) terminals. And consumers loved it.

Here is how it works. Before you can use your phone to pay for your latte, you need to get the Starbucks prepaid card, which is the only payment method you can use with Mobile Pay. Then you need to download Starbucks’ mobile app, link your card to it and you can start using it. Whenever you are ready to check out, the app will display a 2-D barcode on your phone’s screen, which will be scanned by the barista and the payment will be completed. When you need to replenish your prepaid card’s balance, you can do so using PayPal or a credit card.

There Must Be a Better Way

So if Starbucks customers are so eagerly adopting its m-payment service, why am I still not embracing it? Well, I have a couple of issues with Mobile Pay, both of which have to do with limitations.

My first issue is that Mobile Pay can only be used at Starbucks locations. By contrast, all digital wallets are designed to allow users to make payments at any participating merchant. Of course, the mobile wallet concept suffers from its reliance on NFC, which requires that existing POS terminals are retrofitted or replaced with ones that are NFC-compatible, which is both expensive and time consuming. However, when (and it is not “if”) the infrastructure is in place, consumers will be able to use one service for payment at any merchant. The alternative is that we download an app for every retailer whose stores we are frequenting and get one of its prepaid cards. And that brings me to my second issue.

I, and many other consumers, just don’t want to be using prepaid cards, even ones that are as good as Starbucks’ (and it is a good one, as prepaid cards go). There is absolutely no reason anyone with an access to credit cards should be using prepaid cards, which have no effect on your credit history and offer no rewards. And anyway, why should I get a card, which I can only use at Starbucks? Should I do the same for Whole Foods, Trader Joe’s, Marshalls? Where does it end? It just makes no sense to me.

The Takeaway

A digital wallet that supports all types of cards, as well as other payment methods, and places no restrictions on the locations where it can be used for payment, would be a much more consumer-friendly service than Starbucks’ Mobile Pay. It will truly be a digital version of our leather wallets and I believe that it will become just as indispensable. Well, Google Wallet is already offering that, but it is not doing well. Isis will be launching this summer, but only in two cities.

The major issue, as I already mentioned, is that the infrastructure is not yet in place. Additionally, there are only a couple of NFC-enabled smart phones that are currently available, although that will change by the end of the year. So it is a question of time and while we are waiting, Starbucks will keep gathering steam.

Image credit: Wikimedia Commons.

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