Longtime Starbucks boss Howard Schultz was so invested in the company's mobile payments strategy that he once stepped down from his day-to-day duties to focus his full attention on the tech initiative. Without his involvement, will Starbucks lose its edge in fintech?
For a company that has long posted mobile wallet usage numbers that far exceed what dedicated mobile wallet providers can boast, Schultz's departure is a major event — perhaps on par with Steve Jobs passing the torch at Apple.
One of Schultz's key moves as CEO after returning from an eight-year hiatus in 2008 was introducing a loyalty program. The Starbucks card app would follow a year later, but the company has long held that the app's success was made possible only due to the immense popularity of its loyalty and gift card programs.
A secret recipe for mobile payments
A lot has changed with the Starbucks app since it began testing in 2009, but Schultz was a consistent presence throughout. The coffee chain's mobile wallet was originally a standalone app developed with mFoundry, and it worked only in Starbucks stores built into Target stores, which already used the necessary bar code scanners.
As Starbucks scaled up its mobile wallet's reach, it also embedded it into the main Starbucks app and took over development from its vendor. At one point, many of the Starbucks employees who worked on the app left the company to found CardFree, which developed the app for Dunkin' Donuts.
But Schultz stayed.
Schultz championed the mobile payments program from its launch through this year, as U.S. membership in its loyalty program rose to nearly 15 million, driving 37% of all U.S. sales.
Payments became a major differentiator for Starbucks, catalyzing other merchants to follow suit. So far none of Starbucks' rivals have matched its level of consumer and rewards program participation — and even now, Starbucks is becoming a victim of its own success as it struggles to get further growth out of its already massive mobile user base.
Schultz dove into Silicon Valley’s payments tech scene, orchestrating a three-year processing partnership with the startup Square, which included Starbucks investing $25 million in Square, and Schultz
When rumors swirled in early 2014 that Apple was working on a mobile wallet, Schultz announced he was handing over many of his CEO tasks to other executives so he could
Starbucks' CFO Troy Alstead became chief operating officer, freeing up Schultz so he could focus on those tasks.
Starbucks also rekindled its relationship with Chase—in 2003 the companies launched the cobranded Duetto Visa rewards card, which got rave reviews but was
The Chase partnership went more smoothly the second time around, and in the fall of 2016 Starbucks began accepting Chase Pay. Starbucks and Chase also announced plans in 2016 to roll out a cobranded reloadable
The beginning of the end
After completing those deals, Schultz's focus on payments began to waver, as Starbucks faced a number of costly setbacks on other efforts to
Starbucks also tried expanding in another direction by purchasing La Boulange pastry shops in 2011 for $100 million, but it folded that operation in 2015.
Starbucks continues to see strong growth in Asia, and its comparable-store sales in the U.S. are positive, but its mobile payments volume growth seems to have peaked. In July 2017 Starbucks said
With Starbucks’ mobile transactions beginning to plateau, Schultz in April 2017 resigned as CEO and moved to the role of executive chairman to a concept for elite coffee-tasting rooms and setting Starbucks’ social impact agenda.
Schultz had a high-profile role in Starbucks’ social initiatives over the last two years, including backing the company’s commitments to hire more
On June 4 Schultz said he was
The prepaid card announced in 2016 fell by the wayside and didn’t launch until
As the last payments product to launch with Schultz still aboard at Starbucks, the prepaid card has the air of an abandoned mission.
Arriving more than two years after its promised rollout, the reloadable prepaid Visa card—a financial vehicle typically targeting consumers with no bank access—will be tough for unbanked consumers to use.
Funds can only be loaded to the Starbucks prepaid card from a checking or savings account, a debit card or Chase’s own Liquid reloadable prepaid card, which costs $4.95 per month for unbanked consumers. Customers may apply for the prepaid card online.
It's worth noting that reloadable prepaid cards recently have begun evolving beyond unbanked users to serve budget-minded consumers, according to Ben Jackson, chief operating officer at the Network Branded Prepaid Card Association.
Starbucks also said in 2016 its loyalty program members could soon earn rewards outside of Starbucks through strategic
Instead, Starbucks is leveraging its digital platform in new ways to expand the sales funnel.
The company in March expanded its mobile order and pay service to all customers, not just Starbucks Rewards members. At the same time, Starbucks began requiring all store visitors to register their email at least once to get free Wi-Fi.
Starbucks also recently made its "Happy Hour" go year-round from a seasonal program, and began targeting customers who have registered their email but who aren't in the loyalty program with special offers.
"The new program will be used to sign customers up for direct digital relationships," Rosalind Brewer, Starbucks' chief operating officer, told analysts in April.
