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Starbucks and Square team up in possible game-changing deal

Up until now, most New Yorkers' experience with Square, a startup payment processor, was limited to paying for cupcakes or art at little boutiques around the city. Small-business owners were among the first to take to Square's card processing device, which could be attached to any smartphone, because it was easy, inexpensive and efficient.

Now, one of the biggest businesses in the world has jumped on board with Square and the agreement is likely to spur a new wave of business development that could make Square the next Visa or MasterCard.

Last week, Starbucks announced that it would allow Square to manage all of its credit card payments and would also invest $25 billion in the company.

In order to provide service to Starbucks, Square will establish a smartphone-based platform onto which a customer will load his or her credit or debit card information. The customer's phone's GPS unit will allow the cashier to access the customer's Square profile and charge the customer's order to it. No cash changes hands and no physical card is swiped. Think of this as sort of a wireless passport for paying for things. As you can see, it will be quite a leap forward for mobile payment systems, which have already gained traction in Europe and Japan.

The deal is an enormous one for Square. Last year, it processed $6 billion worth of payments, which is just about half of Starbucks' annual sales of $11.7 billion (much of which, it's reasonable to presume, were made with a credit card).

The deal is expected to bring Square $120 million in revenue during the first year of its operation.

Source: The Santa Cruz Sentinel, "Starbucks partnership with Silicon Valley's Square is a 'game changer' for mobile payments, experts say," Peter Delevett, Aug. 8, 2012

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