Why Starbucks is betting on Square

While Square is the hot mobile payment startup, Starbucks is no slouch, having recorded 60 million mobile transactions in the last year and a half with its smartphone app or nearly 2 percent of all transactions. It now has more than a million people a week paying with the Starbucks app. So why is Starbucks partnering with Square? It’s because Starbucks has seen the power of mobile payments first hand and knows it has the potential to be huge across all kinds of businesses, big and small. But it wasn’t prepared to expand its barcode-based payments system to other merchants. It made more sense for Starbucks to team with someone already in the larger mobile payment space than expand its current efforts. So it’s placing a bet on Square to be a leader in the form of a $25 million investment at a reported $3.25 billion valuation.

Seth Priebatsch, chief executive of Scvngr, which offers a mobile payment app called LevelUp, said this is an “awesome deal” for Square, but could be a dangerous move strategically. He said that Square had a top-down approach with its technology: It provides an app and a point-of-sales system and acts as a processor. The partnership with Starbucks could scare merchants into scrambling to build their own mobile payment systems, he said. Priebatsch also said that adding Starbucks’s chief executive, Howard Schultz, to Square’s board gives the coffee giant influence over Square’s payment system, so other merchants could feel left out