Was Starbucks Digital Wallet Investment Worth it?
May 24th, 2016 - Posted by Adel Shahin
Mobile apps have grown rapidly in usage over the past couple of years from the early days where they were regarded as playthings for technological geeks and wizards, to important marketing and branding tools utilised by a large proportion of the world’s population. From recreation to maps, directions, shopping and communication, the usage of mobile apps now permeates all spheres of modern day life. Many businesses today have embraced technology and the various payment instruments that it has brought. Payment instruments such as credit cards, debit cards, mobile money platforms, online payment platforms among others, have gained acceptance all over the world today.
In early 2009 Starbucks, the renowned global coffee giant, launched a mobile card app in a pilot project that covered 16 of its stores in Portland, Oregon, USA. The app, which is now available on the Android and iOS platforms, had two unique features added – a digital wallet that could be used for mobile payments, and a customer loyalty programme.
Despite the availability of a wide range of payment instruments, Starbucks took a maverick approach to its digital wallet. Instead of using an external tool, it incorporated the digital wallet into its mobile app thus allowing customers to enjoy seamless integration between the payment function and customer loyalty functions.
Effects on Customer Spending
Following the enormous success enjoyed by the initial trial run, Starbucks rolled out its mobile app with digital wallet and customer loyalty functions across its stores. As at April 2016, the app has grown tremendously with Starbucks now processing 8 million mobile ‘order and pay’ transactions per month! By making the customer experience simple and more efficient, Starbucks has gained increased consumer orders which ultimately led to more revenue.
Effects on Customer Experience
Having been improved and enhanced to include advanced order functions, ‘shake to pay’ and even an option to give a tip, the app has revolutionised the Starbucks coffee experience. The ease with which a customer can make payments, keep track of rewards in the loyalty programme and use coupons to pay for food and drinks has made the app a customer favourite and its usage is increasing and is unlikely to lose momentum anytime soon. However, concerns over the app’s security needed to be addressed as fraudsters have already taken advantage of the existing features to steal bank account funds using the app. Starbucks had advised their subscribers to change their passwords regularly and ensure unique passwords are used between sites.
The success of the Starbucks mobile app is a great indicator of the needs of today’s consumers. While Starbucks had unique circumstances that contributed a great deal to their success such as:
- A successful loyalty and gift card programme
- Utilisation of simple two-dimensional barcodes
- An existing user base
- A commoditised product
Other businesses now have a model which they can customise and improve upon to enhance customer experience and increase consumer spending.
The business world is going digital in all aspects of payments. Any SME worth its salt should stake its claim in the vast field offered by digital wallets, or find itself phased out and overtaken by someone who will. If it has worked for Starbucks, it can work for any industry.
The successful run enjoyed by the Starbucks’ digital wallet so far is a pointer to a dynamic and fluid market that is changing daily to serve the needs of consumers in a more efficient and effective way. To survive and prosper in this environment, businesses have to embrace technology and innovatively integrate it into their service and products delivery. Failure to adapt and evolve will result in otherwise healthy companies lagging behind and rotting away until finally they are relegated to the museum of ancient relics that have no place in the modern day business environment.
As technology encroaches into all aspects of life, digital wallets are becoming a necessity for every discerning SME. Currently, we have three options in the digital wallets world:
- Closed Wallets: Issued by a business to a consumer and can only be used with the issuing brand. The Starbucks digital wallet is a good example.
- Semi-closed Wallets: These offer a consumer a wider reach. The issuing business has arrangements with select merchants and establishments for the use of their digital wallet. The consumer can use the wallet only within the selected business establishments. Mobile Money systems such as M-Pesa are a good example of semi-closed wallets.
- Open Wallets: These are only issued by banks or payment platforms that have universal recognition. Such a wallet can be utilised in any location at any time.
Each of the above options has distinct strengths and weaknesses. Setting up a digital wallet is no easy task, as it requires significant investment in time and financial resources. The legal requirements vary from one country to the other, but the general denominator is that a form of registration and authorisation is required across most countries. To decide on the most viable option for your business, consult financial and legal experts in your jurisdiction, to help you hone in on the digital wallet platform that will serve your business in the best way possible.
We’ll be writing a white paper on how to go about choosing the type of wallet and what you should be looking for to ensure your solution enables you to grow as opposed to hindering your efficacy. Stay tuned 🙂
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