Starbucks rolls out smart phone payments in Canada

Starbucks Corp. (SBUX-Q44.08-0.26-0.59%) wants to cash in on one of its customers’ addictions – to their smart phones – to profit even more from their other addiction – to java.

On Tuesday, the giant chain will break new ground in Canada in offering mobile payment, starting from an iPhone and, in the coming months, Android and BlackBerry devices. It’s betting that by transforming shoppers’ phones into mobile wallets, it will get consumers to splurge more – and return more often.

“Many of our customers leave home without a wallet, but almost never leave home without their phone,” said Adam Brotman, senior vice-president of digital ventures at Starbucks.

Starbucks’ mobile payment may be the tipping point for other merchants, along with telecommunications, technology and financial services players launching their own mainstream digital wallets, aiming to turn today’s checkout into a relic. Retailers are counting on new technology to make payment as easy as tapping a phone at a scanner, hoping to spur customers to make more impulse purchases while automatically offering coupons and loyalty rewards so they will buy even more.

But digital payment has been touted as the holy grail of improved commerce for years – and has yet to deliver in a big way. Current tests, such as the free Google Wallet app in the United States, are limited because they run only on single cellphone models, requiring a special “near-field communications” (NFC) chip that will become a widespread cellphone feature in the next few years. Starbucks isn’t waiting for NFC to take off, though; it’s rolling the dice with a mobile bar code app to take the hassle out of checking out.

A speedy checkout is vital for retailers so customers don’t abandon their purchase in a long lineup at the register. A mobile-payment purchase takes about six seconds, two-thirds faster than the time to do a credit card purchase, according to Bank of Montreal and MasterCard. Over all, mobile payments can rev up sales between 25 and 40 per cent, MasterCard says.

“Retailers want to move customers on quickly and move on to the next customer,” said David Heatherly, vice-president of payment products at Bank of Montreal, which in September introduced its own touch-less payment technology, enabled by placing a PayPass sticker on phones. “That is the future and that future is approaching quite rapidly.”

Starbucks’s free iPhone app requires users to enter their prepaid Starbucks card number and tap a scanner. The company learned from its experience in the United States, where it launched mobile payment this past January and has processed more than 20 million transactions digitally since, Mr. Brotman said. About 65 per cent of Starbucks’ U.S. customers have smart phones, which is similar in Canada, he said.

Starbucks customers tend to spend a bit more when they use mobile payment, he said. “You might be willing to pick up a CD or something else at the counter because it’s so easy.”

Starbucks will experiment with NFC chip technology as it becomes more mainstream, he said.

Already, Google is counting on its new phone software, Google Wallet, to become the alternative to real wallets. Other tests around the world, including in Canada, are also shifting payment to the phone.

“This probably has been the most overpromised opportunity,” said Richard McLaughlin, senior vice-president of global products at MasterCard Worldwide, which is a partner in Google Wallet. “We’ve been talking about the smart phone being a loyalty and couponing communication device for probably 10 years. It’s now ready to be a reality.”

Canada is a prime market for mobile payment because people here were early adopters of an array of financial-services technologies, from online banking to automatic teller machines, he said.

Retailers will be key beneficiaries of mobile payment, partly because of its potential to reduce their tab for handling cash or credit cards, he said. They now spend 1.5 per cent to 2 per cent of their sales on, for instance, handling, storing and depositing their cash, he said.

Thousands of stores in Canada under such banners as Loblaws, Sobeys, Tim Hortons and McDonald’s are equipping their scanners to accept NFC-enabled payments, he said. “By next year, there will be a lot of stuff on the go that is currently not on the go here in Canada.”

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