Pay with Square at Starbucks: The Biggest Moment Yet for Mobile-Phone Wallets

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If you stop by Starbucks regularly for a caffeinated fix, you’re about to have a good excuse to try Pay with Square, Square’s mobile-payment app for iPhone and Android. The coffee chain has struck a deal which will result in 7,000 Starbucks-owned U.S. locations accepting Pay with Square, starting this fall.

The agreement has multiple other facets: Square will handle Starbucks’ credit card processing and Starbucks will promote local businesses that accept Pay with Square. Starbucks is also investing $25 million in Square, and Starbucks Chairman, President and CEO Howard Schultz will join the payment startup’s board.

The big news is Pay with Square being deployed across Starbucks — and it is, indeed, big. At the moment, Pay with Square is accepted at around 40,000 locations — mostly neighborhood businesses such as independent coffee shops, restaurants and beauty salons. The agreement with Starbucks will put it in a major nationwide chain for the first time, and therefore puts it in closer competition with Google Wallet, which is already accepted at Home Depot, Office Depot, Starbucks rival Peet’s, Macy’s, RadioShack, 7-Eleven and other major merchants.

But Google Wallet has a major gotcha: You need one of a handful of Android phones with built-in NFC technology. That’s what lets you pay by tapping your phone — twice — against a MasterCard PayPass payment terminal.

Unlike Google Wallet, Pay with Square doesn’t require NFC. It works with the iPhone and a bevy of Android models. And you don’t even have to take your phone out of your pocket: If you’ve got a favorite spot, such as your neighborhood Starbucks, you can tell the Pay with Square app to automatically open a tab each time you enter the establishment. The cashier IDs you by seeing a list of nearby Pay with Square users, with their names and photos, on a tablet or phone used to handle the transaction.

Pay with Square is designed for simplicity, not heavy-duty security. If it were widely used to pay for big-ticket items, you’d want more layers of fraud prevention. For little purchases, though — like, oh, a cup of coffee — it’s just about perfect. It’s certainly faster than swiping a card or forking over cash and waiting for change.

(CLARIFICATION: Square has plenty of security behind the scenes, and doesn’t store your credit-card info on the phone. But it does’t make you enter a PIN to make a purchase, so in the end, it’s reliant on the cashier paying enough attention to make sure that you look like the person in the photo. Of course, that’s arguably better security than is offered by credit cards…)

Both Pay with Square and Google Wallet face competition from still other mobile-payment apps such as GoPago and LevelUp, which come at the proposition with still different approaches. It’s all felt a tad experimental, and none of it is anywhere ready to render credit cards and plastic obsolete. But with Pay with Square and Starbucks teaming up, we’re about to see what happens when an app running on lots of phones is accepted (and promoted) by a huge chain that serves millions of people a day. It’s a first step towards a situation similar to what’s already going on in Japan, where plenty of people use their phones to pay at McDonalds and the like.

I’m excited to see it in action — and I don’t even drink coffee.