Nanda Kumar Nanda Kumar CEO - Suntec Business Solutions

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Barista banking

  • It seems everybody wants to get into the mobile payments space, but after some lacklustre attempts and the occasional monumental failure, you have to ask why.

    Isis - the US-based NFC-based mobile commerce network spearheaded by Verizon Wireless, AT&T Mobile and T-Mobile US seems to come and go in spurts. Since it’s conception in November 2010 we have seen a flurry of PR activity about once a year and then it sort of dies away, presumably to try and deliver what was promised during the previous publicity blitz. Reports indicate it has not reached anywhere near the potential expected.

    mobile bankingBanks and credit card issuers don’t seem particularly enamoured with mobile payments either. And why should they? Their ecosystem has withstood the test of time and they control it admirably. Plastic cards, even those with NFC capability, are cheap to produce and they don’t need to share any revenues with mobile operators wanting to charge rent on their secure SIMs.

    Even consumers, lured by the promise of easy swipe payments and security offered by smartphone-based NFC mobile wallets, are confused by the bureaucracy surrounding sign-up and the many choices being offered.

    But there is a rather surprising stand-out success story that has defied all the trends and is setting a precedent others are quickly following. "The Starbucks mobile wallet, which is funded by a linked prepaid Starbucks card, has become the poster child for what retailers can do with mobile wallets," says Euromonitor senior consumer finance analyst Michelle Evans. "Starbucks was ahead of the curve when it launched its mobile wallet in 2011, and now has 10 million users."

    Those linked prepaid cards, linked to a smartphone app fund account for a massive one third of Starbucks' North American sales. Starbucks currently processes 5 million weekly mobile payments, up from 2 million a week at the end of 2012.

    But it has been the integration of Starbucks' loyalty program with its mobile app has been a big factor in driving the app’s usage. Rated as one of the leading loyalty programs in the USA customers earn ‘stars’ by paying with their registered prepaid cards, participating in product promotions, and completing incentivized actions. Once ‘stars’ are earned, they are stored in a customer’s user profile until they are redeemed for drinks, food items, and more.

    Starbucks goes further by allowing loyal customers to avoid the most negative experience of lining up in stores by allowing them to order their coffee through the app and then pay for it when collecting using the QR code on their phone. In the first three months of 2014 reload transactions for the prepaid cards averaged $22 and exceeded $775 million in total. It is estimated that Starbucks holds between $2 billion and $3 billion in prepaid balances at any one time.

    The idea must be catching on because CapitalOne 360 in the USA, a virtual bank with no physical branches is rolling out its own coffee shops. The company claims that “across America, banking and living come together at the Capital One 360 Cafés. Each Café is a unique community space where you can learn new ways to save time and money while you tap free Wi-Fi and enjoy a great cup of coffee. So stop by and get to know our Associates and fellow Savers.”

    In one situation we find baristas in a coffee shop accepting payments with the swipe of smartphone, in the other we find baristas in a bank doling out financial advice freely with the coffee.

    How long will it be before Starbucks applies for a banking licence (or is forced to if those prepaid balances are regarded as deposits) and how many more banks will open coffee shops as a means of providing loyalty benefits and the social experience that is lacking online? One thing is certain, if you are a barista you will be in great demand!

    Nanda Kumar
    About Nanda Kumar Nanda Kumar works as CEO at Suntec Business Solutions
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