Wake up and smell the coffee! What banks can learn from Starbucks

6 January 2014

Brenton O'Callaghan

Brenton O'Callaghan

Global Head of SAP Innovation

You may have thought of Starbucks as king of the high-street coffee emporiums, but you’d be wrong: it’s actually king of the mobile payments market.

There are plenty of contenders for the title, including Square, Google Wallet and Isis in the US, but so far, they have yet to muster enough followers to topple Starbucks from the mobile payments throne, according to research firm Berg Insight. About $500 million worth of mobile payments were made last year in North America through mobile apps, according to Berg - and most of these were through Starbucks’ Smartphone app. An incredible and enviable achievement!

Looking closer at the figures, Starbucks’ chief executive Howard Schultz said that 11% of in-store transactions in its US and Canadian stores were paid for with a mobile device rather than cash or card - that translates to more than 4 million mobile transactions a week and more than 8 million customers that use its mobile app. UK customers can also pay for their coffee fix via their iPhone or Android device.

Relationship building

This is more than just a different method of payment, it’s a new way of communicating and building relationships with customers that most other retailers - and banks - have yet to adopt. And Starbucks is not sitting back and basking in its success, it will soon be adding digital tipping and mobile ordering and has also joined forces with Square to enable mobile payments.

Regardless of the relationship building aspect, the numbers stack up impressively on their own. As money is pre-loaded into the app, Starbucks has actually pulled in a lot of money before anyone has even ordered a latte.

Its early days for mobile payments and the picture will eventually change. Starbucks’ mobile app is for use exclusively in Starbucks stores, whereas other mobile payment mechanisms are for general use. But it is taking a long time for the likes of Google Wallet to garner favour among consumers.

Banking transformation

Mobile payments and other financial services are transforming the banking landscape in the same way that ATMs did in the 1970s and the internet has done over the last 15 years or so, but this latest banking revolution is being driven by consumers, not by the banking industry. As Smartphones and tablets increasingly become our device of choice, it makes sense that this will also be our chosen platform for banking. Starbucks recognised this early on and pounced on it.

The key to Starbucks’ success is that the mobile payment is part of its loyalty programme and tracking loyalty points is one of the key reasons people use the app. Banks can learn from Starbucks the power of meshing together easy payments with loyalty perks.

What banks cannot afford to do is view mobile as simply another channel for doing business. Starbucks has shown what can be done - and not by a bank or even a technology company. While there are some new players such as Google Wallet which works with existing credit-card firms, others are cutting out the banking industry altogether such as PayPal or Square. Banks have no choice but to find a way of not just adding existing services to mobile channels, but by carving out new offerings to customers that make them indispensable. If they don’t do it, someone else will.

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About the author

Brenton O'Callaghan

Global Head of SAP Innovation

Enterprise technology strategist and emerging technology evangelist

I'm a globally experienced SAP expert based in Ireland and I’m currently responsible for creating and bringing our SAP Innovation & Leonardo practice to market. My day job involves helping our customers to solve actual business problems in a rapid fashion using tools such as design thinking, SAP Leonardo and much more. I'm also responsible for exploring how emerging technologies and concepts can be applied within our customer base such as Machine Learning, Blockchain, DevOps and AI.
 
I've a background in computer science and have spent the last 9+ years in the SAP space across a wide range of industries across EMEA and North America. I'm a big believer that the best consultants have a mix of technical knowledge, industry experience and empathy and that is what I bring with my team to my customers. It's all about bringing about positive and relevant business change with the best possible technology.
 
Outside of work you can find me supporting the Irish Rugby team and the Boston Red Sox as well as my new found hobby - golf!

 

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