Starbucks Grinds Through Square Mobile Wallet Adoption Issues

Starbucks has hit some snags in its attempt to maintain momentum for its mobile card app and its deepening partnership with Square, but for the coffee giant, such issues are an expected part of its aggressive expansion plan.   

"We work quickly to adopt new technology, and sometimes we launch initiatives where there could still be some things to work on. But we don't want to wait on innovation to be perfect," says Linda Mills, a senior manager at Starbucks.

Its latest issue was one of training as the company preps its 7,000 stores to accept Square Wallet, a software-based companion to Square's mobile card reader. Starbucks, which doesn't use Square's readers, last year invested $25 million in Square and began using Square for transaction processing.

Starbucks' expanding use of Square technology has in some cases outpaced baristas' grasp of how to use it, generating some recent bad publicity around the user experience. Starbucks' own mobile-payment system encountered similar hiccups in its early months, with some users and baristas instinctively trying to "wave" the phone's bar code in front of a reader instead of holding it still.

Starbucks says it educating its staff on how to use the Square Wallet and how it operates alongside Starbucks' own mobile payment app. Starbucks has also completed work calibrating its scanners to make Square purchases easier. 

"We are doing aggressive in-store training and working with stores on how the Square partnership works," Mills says. As of April 1, Starbucks locations in the Minneapolis area polled by PaymentsSource said they had been briefed and trained on the Square partnership.

Mobile payments systems often suffer issues at first, experts say.

"Starbucks isn't the only company facing this," says Dave Kaminsky, a senior analyst at Mercator Advisory Group. "With a lot of mobile solutions, you'll see a vendor sell its tech to a merchant and get it installed and the vendor assumes the merchant will take care of training on their own. And in reality, when the consumers come in and uses the new system, the employees won't have a familiarity with the tech."

Square would not make an executive available for an interview, and would not comment directly on Starbucks, but the company did share information on its testing system.

For each release, Square performs automated testing, as well as more manual testing at the company's two internal dining centers. These dining centers are configured to operate like businesses, with Square employees using Square Wallet—staff members are reimbursed for the food they buy. Square also has testing parties, in which staff members who are unfamiliar the new product use it in an attempt to spot any lingering issues with the user experience.

"Any new tech will have challenges when you consider there's 7,000 physical [Starbucks] locations," says Andy Schmidt, a research director for CEB TowerGroup. "You are going to have some sort of mismatch…it's just a training problem and I'm hopeful that, given the two companies involved, it will resolve itself rather quickly."

Starbucks is also a much bigger merchant than the ones Square typically serves, Schmidt says.

The Square partnership is designed to expand the ways in which consumers can engage with the coffee chain, Mills says. "We can show up on the Square Directory, for example, which is an opportunity to reach new customers."

As part of its broader loyalty expansion plan, Starbucks is also integrating its Starbucks Card and My Starbucks Rewards programs across several of the company's brands, including Teavana. The program will include Starbucks products sold through grocery stores in the fall.

"Grocery stores are the next step for us," Mills says. "We know that a lot of our customers buy our products inside stores and we want to give them rewards toward purchases made outside the grocery store."

There are no current formal revenue-sharing arrangements with grocery store chains—Starbucks puts stickers on products it ships to grocery stores. When consumers remove the stickers, they see a code that can be redeemed online.

"There's no burden placed on our grocery store partners," Mills says.