The coffee giant will offer a new payment system using GPS technology.
SAN FRANCISCO - Cash moved one small step nearer to its deathbed with the announcement on Wednesday that Square, the mobile payments start-up, would form a partnership with Starbucks Coffee Co.
This fall, Square will begin processing all credit and debit card transactions at Starbucks stores in the United States, and customers will be able to order a grande vanilla latte and charge it to their credit cards simply by saying their names.
Though smartphone payments have a long way to go before they replace wallets altogether, Starbucks' adoption of Square will catapult the startup's technology onto street corners nationwide, and is the clearest sign yet that mobile payments could become mainstream.
"Anyone who's going to break the mobile payments barrier in the U.S. has to overcome the resistance to try anything new when everything we have works really, really well, even cash, which is very convenient," said Bill Maurer, director of the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine.
"But if a big merchant jumping into some mobile payment solution signals to other merchants that there is an opportunity here," he added, "that might change the psychology for other merchants."
Starbucks has offered its own mobile payment app since last year and processes more than a million mobile payments a week. Customers will continue to be able to use it, but they will also be able to use Square's cellphone app, which eliminates even having to take the phone out of your pocket or sign a receipt.
At first, Starbucks customers will need to show the merchant a barcode on their phones. But when Starbucks uses Square's full GPS technology, the customer's phone will automatically notify the store that the customer has entered, and the customer's name and photo will pop up on the cashier's screen. The customer will give the merchant his or her name, Starbucks will match the photo and the payment will be complete.
Even though Square's app has been well reviewed, it has not caught on with shoppers, which has been Square's biggest challenge as it tries to expand. Most of Square's users are small businesses, like farm stands or cafes that also use Square's credit card reader (pictured at left).
Starbucks, which will be far and away the largest business using Square, could change that.
"Starbucks is one of the largest organizations in world, taking technology like Square -- simple, fast and focused on customer experience -- and bringing it to a massive scale," said Jack Dorsey, Square's co-founder and chief executive.