Starbucks signed with Square Inc. that will have the world’s biggest coffee chain use the 2-year old startup’s technology to process mobile payments. It has won over other established payment processors. The deal was announced Wednesday.
According to the announcement, Starbucks will invest $25 million in Square, which is a San Francisco-based company led by Jack Dorsey. Dorsey is the co-founder o social media company Twitter. Starbucks CEO Howard Schultz will be part of Square’s board.
Starbucks got its stake as participant in Square’s $200 million funding round that valued the startup at $3.25 billion. This was up from its $1.6 billion valuation a year ago. The Starbucks deal will bring millions of consumers to their application.
The deal comes as Square faces strong competition from other payment processors such as eBay and Intuit. Most of the companies also provide mobile payment processing tools. The increase of mobile tools in recent years had analysts to predict that consumers don’t have to carry their wallets in the future. This can cause a lot of security problems for existing payment processing businesses.
As the deal between Starbucks and Square was announced, shares of Verifone Systems Inc dropped 12 percent to $34.18. The company produces credit card processing machines. Earlier this year, the company launched Sail, a product that competes with Square.
At present, Starbucks uses payment processing services of a bank that was not named by the source. Major banks that have processing services are Bank of America Merchant Services and JP Morgan Chase’s Chase Paymentech. Starbucks declined to comment on its existing payment processor.
Starbucks deal will change the way its products are charged. Square technology will be integrated into the chain’s existing point-of-sale hardware and consumers will not notice the difference. Starbucks plans to use Square products in the future, which includes the use of proximity sensors that will pick up on whether the customer has a smartphone that has Square’s app as one walk in the door.