Starbucks: The Unlikely Winner in Mobile Payments

By Elena Mesropyan for LTP

Payments companies have traditionally been among the most financially attractive out of the whole FinTech array in addition to being the most represented globally. However, a conventional type of a payments service provider (PSP) is not all there is to payments.

As financial technology brought new types of shareholders into the scene, the payments segment was not an exclusion with the emergence of non-financial companies gaining power and attention. Examples of such companies include coffee chains, ride-sharing companies, e-commerce and social media giants. And most interestingly, even without naming, everyone would know which companies those are exactly. At the moment, let’s focus on a unique case of a non-financial company-wide focus on mobile payments experience, embodied by strategic partnerships and developments.

Starbucks is the real winner in the mobile payments game

Starbucks is one of the most vivid examples of the role that an outsider can gain in the financial services industry. The coffee chain company owes its success with mobile to a streamlined experience, which starts without customer even leaving the house. Bloomberg reported that in February, about 7 million orders were placed through mobile devices in US cafés. The order-ahead feature already accounts for about 15% of those payments, and 3% of total transactions.

Starbucks offers the largest and most robust mobile ecosystem of any retailer in the world

With more than 12 million Starbucks Rewards members (up 18% YoY), 8 million mobile-paying customers with one out of three now using Mobile Order & Pay, and more than $6 billion loaded onto prepaid Starbucks Cards in North America during the past year alone, the coffee chain offers the largest and most robust mobile ecosystem of any retailer in the world.

The most successful loyalty program?

Starbucks’ loyalty program is a successful example of how a company can turn transactions into an experience. In fact,38% of Starbucks tender comes from rewards or gift cards, 33% of which are registered and enrolled in the Starbucks Rewards program. Starbucks rewards program is designed to encourage using mobile ordering, which leads to enticing rewards, such as free refills, generous discounts, and the occasional free drink or sandwich.

Mobile focus as a core strategy of growth and development

Starbucks’ mobile app is a benchmark in its category. It’s the only thing one needs to get a product with no interaction with anyone and no standing in line – the app accounts for 25% of total in-store purchases at the chain.

Over the past years, the company turned its focus towards the mobile experience. As Adam Brotman, the Seattle-based chain’s Chief Digital Officer, commented at the beginning of this year, “The app is very important. It’s become one of our core strategies.”

Social gifting emphasis in partnership with China’s leading mobile social communications service

Not only has Starbucks become a rare successful case of utilizing loyalty program to drive mobile payments, but the company also knows how to forge beneficial partnerships in support of its strategy. Recently, the company became the first retail brand to combine and bring a locally relevant social gifting and digital payment experience to life on WeChat in China. At the beginning of December, Starbucks and Tencent Holdings pioneered a strategic partnership to co-create a new social gifting feature on WeChat, China’s leading mobile social communications service, in early 2017.

Starbucks + AI for an enhanced mobile experience

With the impressive success of Starbucks’ mobile-focused strategy, the years to come are expected to deepen the company’s roots in mobile experience. Less than a week ago, the coffee chain revealed an innovative conversational ordering system – the AI-powered My Starbucks Barista for the Starbucks Mobile App.

Starbucks’ chatbot will allow customers to place their orders via voice command or messaging interface, delivering unparalleled speed and convenience, enhancing customer loyalty and engagement and further extending the accessibility of the Starbucks app. The My Starbucks Barista feature is slated to be rolled out first on iOS in limited beta in early 2017 and will be made available to more iOS and Android users in subsequent releases.

Emphasis on a personalized mobile experience

As the company reported, Starbucks hyper-personalized e-mail reward offerings – with more than 400,000 variations – have more than doubled customer response rates over previous segmented email campaigns, translating into increased customer engagement and, importantly, accelerated spend.

Starbucks has delivered personalized offers to customers directly on the front screen of the mobile app. By early 2017, the company expects to complete the rollout of suggested selling and recommendations (suggesting items for pairing or additions to a customer’s order) during Mobile Order and Pay checkout, which the company believes will further fuel engagement and growth.

Encouraging higher tickets with rewards program

With Starbucks Rewards, customers are finding increased value when being rewarded for bigger purchases. This enables the company to boost tickets, create greater marketing flexibility and pursue “Stars Everywhere” partnerships to create further Star-earning opportunities, while reducing “order splitting.” With a 94% program retention rate, and new international markets on the horizon, the program is stronger than ever before.

First appeared at LTP