Starbucks Mobile Payment System Didn't Use NFC for a Reason

Technology decisions ought to be dictated by business requirements, and so should the timing of technology investments. Generally speaking, if a business can wait for the "next generation" of technology, it often should do so. If it cannot wait, and has an immediate business need, it should buy the existing solutions, especially if there is an upgrade path.

The Starbucks mobile-payment app, now available for iPhones, the iPod Touch and several BlackBerry models, is based on the coffee chain’s popular prepaid Starbucks Card, and is an example of that sort of process. You might wonder why Starbucks would deploy a 2D bar code solution now, when it could wait 18 months to two years and possibly use a new system based on one or more near field communications platforms.

The answer is that Starbucks did not think it could afford to wait. Nor, in one respect, is the Starbucks mobile payment system primarily about "payment." It is about loyalty, especially the Starbucks card.

Customers use the private-label card for one in five transactions at Starbucks coffee shops and last year loaded $1.5 billion in their card accounts, up more than 20 percent from 2009, said the company. Since the mobile payment app is linked to the Starbucks card, and since the Starbucks card itself if more about loyalty than "payment" as such, Starbucks is betting that the chance to extend its loyalty program to the mobile handset is worth doing right away.

Not unimportant is the fact that 2D bar codes can be used by a wide range of handsets, while near field communications is only now starting to be introduced. In a scale business, the advantage of large installed base is obvious. So is the fact that the terminal upgrades at roughly 8,000 locations are modest.

With the app, after the customer scans the 2-D bar code at the point of sale, Starbucks deducts the amount of the purchase from his Starbucks Card account over the network.

The physical implementation might not be the most elegant imaginable (one has to have a physical Starbucks card first, and you have to obtain one physically, at a store), but that was not apparently the most-important consideration. Speed to market, low cost and ubiquity seem to have been the overriding considerations.

Starbucks’ Bar-Code Embrace Unlikely to Slow NFC