Starbucks Test of mFoundry System a Mobile-Pay Boost

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Mobile phone payments have just been given an espresso shot, with the endorsement of Starbucks Corp., the first company to use a bar-code payments system from mFoundry Inc.

Many banks and payment companies allow customers to check balances and move money from their cell phones, but there are far fewer examples of systems in use that allow phones to be used to make payments at the point of sale. The Starbucks program, though at few stores today, works with all Starbucks prepaid cards and could entice other large retailers to adopt the technology.

The mFoundry system displays a unique image on the screens of Apple Inc.'s iPhones and iPod Touch devices. The images consist of black-and-white squares arranged in a checkerboard style, and function like standard bar codes. They can be scanned with the optical checkout scanners in use at many retail stores. The software also allows users to reload their cards or lock them with a passcode.

Though the Starbucks test is in only 16 of the Seattle company's stores, it has already helped nudge other retailers off the fence, mFoundry said.

"Getting them to go first was the hard part," Drew Sievers, a co-founder of mFoundry and its chief executive, said in an interview Friday. "Now that Starbucks is out … it made it very real to" other retailers "and it allowed them to get senior-level attention that they needed."

Sievers said his company expects to announce another major retailer this week and another soon thereafter. And thanks to the attention surrounding Starbucks' use of the technology, he expects to close two more deals in October with companies that have been considering the technology.

Starbucks would not provide an executive for comment about the trial nor provide any details on how it has affected customer behavior so far. A spokeswoman said by e-mail that "we look forward to giving the trial enough time for us to evaluate customer response and gauge success of the mobile payment experience in our stores."

Though the Starbucks system only works a an iPhone application, Sievers said other clients will likely also include text messaging and mobile Web features when they go introduce their mobile payment systems. In addition to the iPhone, mFoundry supports Research in Motion Ltd.'s Blackberry devices and phones that use Microsoft Corp. Windows Mobile software.

Sievers said the bar-code system is not meant to replace contactless payment technology, also called near-field communication, which has been tested extensively by several major payments companies. In fact, he said the mFoundry system could hasten the deployment of NFC technology.

"I still believe that NFC will benefit from it, and other mobile payment companies will benefit," he said. "I think that this is a great way to get consumers thinking about their mobile phone as a payment vehicle."

The mFoundry technology works with optical bar-code readers that, unlike laser scanners used for conventional bar codes, take a picture of the blocky code they are attempting to read. This allows them to get a clean image of the phone's screen, whereas a laser reader "goes right through" the glass. Optical scanners are already in use at many major retailers, Sievers said.

Starbucks is not the first company to test the waters for mobile payments.

Obopay Inc. and PayPal Inc. both allow users to make person-to-person payments through mobile phone software. PayPal, a unit of eBay Inc., is the payment system behind the Blackberry app store, and Obopay is the technology behind MasterCard Inc.'s Mobile MasterCard MoneySend.

First Data Corp., Bling Nation Ltd. and Blaze Mobile Inc. all market mobile phone payment systems that work through contactless payment stickers that are meant to attach to cell phones.

Still other companies offer bar-code and text-message systems similar to what mFoundry offers — there is no shortage of options for any merchants or issuers willing to take a chance on mobile payments.

Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham, Mass., said Starbucks is a natural test bed for such a system.

"Starbucks has been ahead of the field for years," McPherson said. "They've been pioneers, because they have this closed system and this very loyal client base."

He questioned whether blocky bar codes would be enough to keep people using their phones for payments after the wow factor wears off, but said that the other features, such as the ability to reload the card from the phone, are more meaningful and could encourage long-term use.

The technology might still be too young to transition to an open-loop system, McPherson said. "The biggest obstacle is that most checkout scanners don't read bar codes off cell phones," he said. Starbucks and other large retailers can make sure that technology is in place at their stores before testing this technology, but banks that want to use it would have much less control.

Starbucks was wise to focus on the iPhone first, he said. "That audience is app-crazy," he said, and thus more receptive to trying something new with their phones.

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