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With mobile payments based on near-field communication (NFC) technology struggling to gain acceptance, new figures from Starbucks Corp. provide yet another example of how non-NFC systems are jumping to a fast lead in the mobile race.
The Seattle-based coffee king this week reported that it has handled a total of 26 million mobile transactions at the point of sale since launching its mobile-payment program in January. Customers made 3 million mobile transactions in the first nine weeks of the program, a number that doubled to six million in a nine-week period beginning in October, the company said.
Starbucks links its mobile payments to its popular prepaid Starbucks Card, which had $2.4 billion loaded onto it globally in fiscal 2011 ended Oct. 2 and accounts for 25% of U.S. transactions. After downloading an app to an iPhone from Apple Inc. or a smart phone running Google Inc.’s Android operating system, U.S. cardholders can use their mobile devices to pay at Starbucks if they’ve registered their prepaid card with Starbucks. They pay by opening the app, which displays a 2-D barcode. The clerk scans the code with a reader to deduct the transaction amount from the prepaid account. Customers also can use the card to send electronic gifts and get rewards based on their purchases.
In addition to nearly 7,000 U.S. standalone stores, the mobile program is accepted at Starbucks locations in more than 1,000 Target Corp. stores and since June at nearly 1,000 Safeway Inc. grocery stores.
“2011 was a year of great mobile exploration and expansion for Starbucks and an opportunity to give our customers a new way to connect with Starbucks through a variety of mobile experiences,” Adam Brotman, senior vice president and general manager of Starbucks Digital Ventures, said in a statement. Brotman was unavailable for an interview.
While Starbucks’ program is the most successful U.S. merchant-based mobile system so far, mobile payments are still a small portion of its overall sales, notes Rick Oglesby, a senior analyst with Aite Group LLC, Boston. For example, the 26 million transactions comprise only about 6% of all its redemption, reload, and activation transactions in the last three quarters of fiscal 2011. Starbucks said users reloaded $110.5 million onto Starbucks cards since January through mobile devices, which would represent about 10% of global reload value in the fiscal year’s last nine months.
“[Mobile] is still a pretty small number in terms of what their overall run rate is,” Oglesby tells Digital Transactions News. “It’s not huge, it’s not taking off like a rocket ship, but it’s a slow, steady clip.”
Backers of NFC-based mobile payments might prefer a slow, steady clip to the problems they’re encountering in getting widespread buy-in from telecommunications companies, banks, merchants, consumers, and players such as Google and other providers. For example, a new Samsung NFC-enabled smart phone, the Galaxy Nexus, is about to hit the market, but units to be sold by Verizon Wireless, the No. 1 U.S. mobile carrier, apparently won’t be configured to handle Google Wallet, Google’s mobile-payment system that has about 30 merchants. Verizon is a co-partner in the rival Isis mobile-wallet joint venture. Isis has only one announced merchant so far and is not expected to go national until 2013.
By far the most successful U.S.-based non-NFC mobile player is PayPal Inc., which predicts it will process $3.5 billion in mobile transactions this year.
