Square Deal: Here’s why the Starbucks tie-up is a game-changer

The announcement that mobile-payment leader Square was tying up with Starbucks Coffee Co. drew widespread attention.

Most analysts viewed this as an investment deal, since the $25 million Starbucks put in Square was part of a fundraising round which valued the startup at more than $3 billion. Certainly not trivial, considering Square is a likely IPO candidate.

The real winner here, however, is Starbucks. Like most big retailers, Starbucks is also a type of bank. A debit or gift card, left unspent, is just money in the bank. That’s why most national retailers now have some form of card, whether it’s a debit card or a charge card. In fact, one could make the case stores like Macy’s, JC Penney and Sears are more like Visa and MasterCard than they are brick-and-mortar retailers.

Despite the push by the banking industry into mobile payments, it’s actually Starbucks who is the top card. According to the Wall Street Journal, Starbucks’ mobile-payment smartphone application has processed more than 60 million mobile payment transactions, with mobile payment is available in about 14,000 worldwide Starbucks.

With Square providing the backbone and Starbucks providing the push, it’s not unreasonable to expect consumers to start using Starbucks cards to pay for transactions among other retailers in the Square network. As part of the announcement: “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.”

Given the grounds Square has made gaining everyday retailers to use it’s service, it may be only a matter of time before a Square-backed card could be used at any retailer in the network. Use a Starbucks card to pay for gas? Why not, if that transaction gets you more points towards your favorite beverage?