
Jack Dorsey: Today Starbucks Signed up for Square - mynameisraj
https://squareup.com/letters/onward
======
faramarz
This announcement makes me happy, for Square and Jack Dorsey as a young
business leader. I love everything about the business idea, execution, design
and tone of the overall strategy.

Noteworthy points from the press release

    
    
      The partnership terms include:
      - Customers will be able to use Pay with Square, Square’s payer application,
      from participating company operated U.S. Starbucks stores later this fall, and 
      find nearby Starbucks locations within Square Directory;
    
      -Square will process Starbucks U.S. credit and debit card transactions, which 
      will significantly expand Square’s scale and accelerate the benefits to businesses 
      on the Square platform, especially small businesses, while reducing Starbucks 
      payment processing costs;
    
      - Using Square Directory, Starbucks customers will be able to discover local 
      Square businesses -- from specialty retailers to crafts businesses -- from 
      within a variety of Starbucks digital platforms, including the Starbucks 
      Digital Network and eventually the Starbucks mobile payment application;
    
      - Starbucks will invest $25 million in Square as part of the company’s Series D 
      financing round;
    
      - Starbucks chairman, president and ceo Howard Schultz will join Square’s 
      Board of Directors.
    

<https://squareup.com//news/releases/2012/square-starbucks>

~~~
jevinskie
"Square will process Starbucks U.S. credit and debit card transactions":

Wikipedia says that Starbucks has $11.7 _billion_ in revenue every year. I
would assume that a majority of that revenue is through a card. I am not
familiar with Square's revenue but I feel that this will at least double their
transactions. Am I correct?

~~~
kayoone
Here in Europe (Germany) i have never seen anyone buying a coffee with a
credit card. Maybe debit card, but that also is rare, its mostly cash for
these small transactions. Most coffee shops dont even take any cards at all,
even here in germany!

~~~
ry0ohki
In Pittsburgh, 90% of the businesses that take Square are coffee shops for
whatever reason

~~~
bonzoesc
Using Square is easy and has low fixed costs. iPad for under $400, iPad stand
for $100, and you don't have to fuck with complicated 1990s credit card
processors.

~~~
ry0ohki
No doubt, it's just odd it's all coffee shops and not other small businesses
like Pizza, books stores, etc...

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abalone
Here's what's in it for Starbucks: Square's cheaper.

Square loses money on transactions below $6. The reason is for the sake of
simplicity they waive the per-transaction fee that Visa/Mastercard charges
them and just charge a flat percentage of 2.75%. But even though this is a
relatively high percentage, it's not enough to recoup the cost of the per-
transaction fee at low transaction sizes.

Take a $2 coffee charged to a Visa credit card. Visa charges Square 1.76% + 6
cents, or 9.5 cents. But at 2.75% Square only collects 5.5 cents.

So even if Starbucks was already paying wholesale Visa/Mastercard rates,
they'll save 4 cents or more a cup thanks to Square's "simplicity subsidy".

Now multiply that by a few billion cups. Starbucks saves millions, and Square
is happy to pay it to drive their growth into the stratosphere.

Source: [http://feefighters.com/blog/can-square-make-money-with-
its-n...](http://feefighters.com/blog/can-square-make-money-with-its-new-
pricing/)

~~~
jusben1369
I would point out that it's unlikely SB's received the same financial terms
offered to Mom and Pop vendors who sign up via the website.

~~~
abalone
Maybe, but they wouldn't need to for the deal to be attractive. Square's
regular rate is already below wholesale processing for small transactions.

~~~
jusben1369
The largest retailers though can negotiate less than wholesale. But you raise
a point. What attracted SB's to the deal? Lower transaction fees or
incremental sales due to a simplified paying process? It can be both but it's
probably not 50/50. I suspect one was the driver and the other gravy.

~~~
vitek
The largest retailers can negotiate the processing (merchant acquiring fees),
but not the interchange. Components of CC fees are interchange (which goes to
card issuing banks), processing (which goes to the merchant's bank), and
association fees (which is how visa/mc/etc make their money). Interchange &
association fees are fixed, processing is the most negotiable. That said, any
>$1B retailer is paying too much if they pay more than a penny/transaction in
processing, so there's not much room for improvement because there are real
costs in that activity.

I think there are two big reasons why they would do this: 1\. Investment They
will likely make a multiple of the $25M when Square IPO's. The best possible
evidence of Square's traction is what Starbucks just provided. Smart
investment 2\. Focus on core competency World class payment processing is not
a significant source of competitive advantage for Starbucks, but it is for
Square. This deal allows Square to worry about payment acceptance & processing
efficiency, and Starbucks to focus on product/service. Michael Porter would be
proud of this deal.

~~~
abalone
What I mean is Square is below interchange for the typical Starbucks purchase.
They subsidize them. That's probably an 8 figure value for Starbucks,
annually.

But I don't mean to imply that's the only factor. I agree about the
investment.

Moreover there's the customer experience of paying with Square. It's nice and
you don't have to set up a Starbucks card and put money on it. You just pay.
It delights customers and may move lines faster, but perhaps most
significantly, it lets Starbucks track loyalty. The business value of that is
tremendous.

Starbucks basically just upgraded their app in a big way. Remember they were
the earliest pioneers of "pay with your iPhone" with ther Starbucks app.

It doesn't hurt that Square is associated with small scale "craft" businesses
either. Starbucks is trying to revitalize their brand right now.

------
salman89
I think more than any other benefit, Square has been validated by a premier
American chain. It will be a much easier sell to other large chains. The big
money for Square is in having these large customers with multiple POS
deployments, where overhead will be small compared to revenues, at least
relative to single shop customers.

It will also put their product in front of end customers, many for the first
time. I for one have heard/read about Square since they first started shipping
readers, but had not actually seen the product in action till last weekend
(live in Silicon Valley).

~~~
notatoad
Yeah, with this announcement square's sales pitch has effectively become
"well, starbucks uses it..."

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joering2
Can someone explain me what it means for customers? As far as NYC goes, each
Starbucks accepts Visa, Master Card, Discovery and American Express (the card
that plenty businesses hate). So what is the benefit for the customers?

~~~
ben1040
One cool feature about the Square mobile app is you can set up geofenced
"tabs" that automatically get opened if you get close enough to an
establishment.

So you keep your phone in your pocket, walk into Starbucks and order a drink
as you do every morning. You tell them "put it on John's tab." You get a
receipt in your email immediately thereafter, and never have to pull out your
phone or wallet.

~~~
endeavor
The cashier is just going to look at me totally lost. Even in Silicon Valley,
maybe one in 100 customers is going to use Square.

I don't see the value for Starbucks customers either.

~~~
avree
Tons of small businesses in San Francisco use Pay With Square already, and
they don't have the rigorous employee training procedures that Starbucks has.

I use Pay With Square all the time—at tiny bakeries, big coffee shops, and
restaurants. No one will look at you lost.

It's convenient because I don't need my wallet, I don't need to sign a
receipt, and I don't need to do anything other than order and walk away.

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dredmorbius
Holy grey-on-grey readability disaster, Batman!

And shouldn't 140 characters have been enough?

~~~
dm8
Skeuomorphism can be horrible if it's not done properly!

~~~
ronaldj
All the cool kids are talking about skeuomorphic design lately.

~~~
dm8
Couple of years back, it was all about "modernism".

~~~
dredmorbius
Modern ain't what it used to be.

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jusben1369
The initial advantage Square had was “green fields” Most of their customers
didn’t accept Credit Cards so they did not have incumbency issues. That’s what
makes this win impressive. However, it also highlights just what Square has to
go through to win a very large account. SB’s had to agree to tear out and
replace their existing POS system. That’s a big risk, headache and cost and
customers will use that leverage (and genuine pain) to drive hard bargains.

Also worth noting is that SB’s mentions processing costs will be cheaper. It’s
hard for me to imagine that SB was overpaying with their last vendor so I
worry about the economics on this deal. Maybe it’s the anchor tenant though
that allows for additional enterprise deals to follow so is worth it. I can
imagine other large retail organizations that had any interest were on the
sidelines saying "It's one thing to service 10,000 food trucks but come on!"
They'll stand up and listen now with this.

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jcdavis
Wow, huge deal for Square. I'm very curious what the terms of the deal are:
presumably Starbucks isn't willing to pay much more than what their current
processing fees are (maybe a tiny bit more for the premium of being able to
use Pay with Square?), so Square must be losing a decent chunk of change in
exchange for the huge marketing and growth this gets them.

~~~
lincolnq
I have heard that Pay With Square causes people to spend more money.

~~~
salman89
Anecdotal, but at a sandwich shop the other day, I tipped $1 when the cashier
handed the iPad to me. Not sure if I would have done the same when signing a
regular receipt.

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pbreit
Interesting. Starbucks is obviously not going to use the error-prone dongles.
I suspect Square will provide some sort of custom "Pay With Square" solution,
perhaps tied into Starbucks' existing point-of-sale system. Any way you look
at it, it's a huge deal for Square, Starbucks is absolutely the best venue for
Square and likely the key building block to really push out a new checkout
experience such as "Pay With Square".

~~~
spullara
Pay with square app doesn't use the dongle at all.

~~~
pbreit
The note talks about processing all Starbucks cc txns.

~~~
jarek
I am assuming at the volume in question they'll just retrofit whatever
software to use the card readers Starbucks currently uses. They're pretty well
built.

------
bootload
_"... I am pleased and proud to announce that today Starbucks signed up for
Square ..."_

Starbucks has a history of taking risks with startups ~
<https://en.wikipedia.org/wiki/Kozmo.com>

~~~
philip1209
However, here I feel that Square enhances the Starbucks core value of creating
an intimate coffee experience.

# With Square:

"I am Jack and I would like [. . . ]"

 _(clicks name with face on screen to charge; receipt emailed automatically)_
"Ok, Jack, your total was [. . .] and here it is"

# Current Method:

"I would like [. . .]"

"Ok, your total comes to [. . .]"

[exchanges credit card]

"Would you like your receipt?"

"No, thanks"

"What name would you like on the order?" _(while holding credit card with name
on it - hence this step is meant to increase intimacy)_

"Jack"

"Ok, here is your drink"

\--

The Square system makes transactions shorter and simpler, and it humanizes the
experience

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fredsanford
Is this yet another middle man to suck fees out of the system? I have not kept
up with Square but despise the though of yet another fee leech that is
compiling a list of my purchases to sell to annoying advertising companies.

/shoutAtClouds

~~~
dm8
> yet another fee leech that is compiling a list of my purchases to sell to
> annoying advertising companies.

Square's business model is transactional. It's not advertising based!

~~~
fredsanford
Read closer.

"compiling a list of my purchases" Visa, Amex, Discover, Mastercard... All do
this and are transactional.

"to sell to annoying advertising companies" And this.

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spoiledtechie
I signed up for square about a month and a half ago. I ordered my little
device at the same time and it still has not showed up at my door step. To me,
they have been a lousy service so far sadly.

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jordo37
Awesome news for square. I am very eager to see how this changes the natures
of: 1) The Starbucks App - will square replace it outright or will there be an
option to use starbucks or square? 2) Paying with a card at starbucks - same
registers or new registers with square dongles? Hopefully its a better dongle
if so...

PS - Anyone noticed how they seemed to be stepping around the idea of those
local businesses being other coffee shops? Craft businesses in the Press
Release...like craft coffee shops?

~~~
jarek
Android Starbucks app "card" payment was just rolled out to Canada and the UK
last month - I doubt it'll go anywhere for a while for these locales. It might
be interesting to see if any payment technology roll-outs beyond US/UK/Canada
go with Starbucks-powered stuff or Square stuff. I'm guessing Starbucks for
now.

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medinismo
I really do not see the benefit of this deal. Square - sure, another bunch of
retailers. Starbux, not so much. NFC will take over and then square is out.
can someone explain?

~~~
cdcarter
NFC hasn't taken over yet. Pay with Square offers something pretty close
feature-wise, and is establishing residence in the market. Once NFC works
well, Square can adopt it and rule.

~~~
gojomo
There is also the chance that Square (and similar geolocation- and photo-
based heuristics) will make NFC superfluous. Why NFC when a human-to-human
word or gesture is faster, more natural, and just as reliable?

~~~
nasmorn
Because eventually they will want to get rid of as many humans as they can in
your caffe latte experience. Or more prosaicly so that you can order a snack
from a snack machine too.

~~~
gojomo
If automated vending machines are the remaining hope for NFC, that's pretty
weak.

A geofenced app -- if not Square, then Apple Passbook or others -- could
prompt me on my own device's screen: "The vending machine here requests $1.50
to dispense your Snickers. Press 'pay $1.50' or 'cancel'."

The soft-interface device screen is much more flexible than the NFC-tap/wave-
in-the-right-place gesture. Your own device screen will be better for doing
things like:

• pre-authorizing a purchase before buying a tank of gas

• requesting an emailed receipt

• offering immediate feedback (or adding a tip)

• avoiding possible confusion/chargebacks about amounts paid.

That could mean 'app-style' payments have not just usability benefits, but
also cost and legal benefits over 'NFC-style'.

~~~
ConstantineXVI
Geofencing is a good hack, but it's still a hack:

\- constant location polling is a battery drain

\- GPS reliability/speed degrades quite a bit indoors (are you at Starbucks or
the shop next door? What happens when another Mr. Gojomo next door orders
coffee and the cashier is rushed and doesn't notice the different face?). WiFi
isn't much help here either if you're in a large urban area.

You can still do all you listed starting with a NFC handshake instead of
playing with GPS. Geofencing is helpful for getting payments onto existing
phones (not to downplay Sq's achievement here), but NFC or another more
localized technology will be necessary to make payments more reliable.

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akent
Jack's signature is "@jack"? Nice.

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OJKoukaz
So does this mean that Starbucks will use the same Square interface that we
layfolk use? I find it impractical that they use this, and not something that
integrates with their existing systems, but then that would mean that Square
has opened up some sort of API to them? When will the rest of us get to see
something like this, if so?

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superbeefy
I really hope square improves their reader. Practically every time I've used
this system, as a customer, it seems to take a couple of tries before it
actually recognizes the card. This may be okay for lower volume businesses,
but for starbucks I could see this backing up lines.

~~~
kpozin
They also charge more if you have to key in the card manually (2.75% per scan
vs 3.5% + 0.15 USD per manual entry).

~~~
mh-
this is because it's processed as a card-present vs card-not-present
transaction. different fee (& risk) brackets.

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rayhano
Once Starbucks are on the Square system, might that be the perfect opportunity
for Square to flip a switch and ask customers for their bank details?

If Square could do a GoCardless with all those consumers that use Square, both
Square and merchants could benefit massively...

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twoodfin
Does this save money for Starbucks over their own branded card? Due to the
rewards available, I'd assume many of their highest volume customers are using
it, and would be unlikely to switch to Square unless those rewards were
transferable.

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chollida1
Is this just for Starbucks US stores or is it for all of North America?

If it's just for US stores then the title should probably be amended. Being a
Canadian, I've never seen a merchant using a square device.

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barrynolan
It's a great validation of developing and iterating the business initially
with the small 'mom & pop' business to the point where traction allows you
capture the really massive customers.

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msantos
This entry is duplicated First entry is in
<http://news.ycombinator.com/item?id=4353817>

------
NHQ
The announcement aside (line 1 of 20), this "letter" is some poor PR spew.
Jack, if you're listening, you need a personal letter stylist. Letters are
like jeans that people read.

------
lhnn
Can someone explain this to a layman who "only" uses credit cards at the
moment? How is whatever this is going to make my checkout at Starbucks quicker
or more convenient than a card or a $5?

~~~
apawloski
Although there do seem like there are benefits for "laymen" -- paying for
something by simply saying your name sounds interesting -- this isn't really
directed towards you. Generally, you would likely still use your credit card
with it, so your experience wouldn't be much different (positively or
negatively).

It's beneficial for business owners who save money by using Square and use
various incentives and analytics that come with.

