In mobile payments coup, pioneer Square scores Starbucks deal

With more than 7,000 locations coming online in the fall, the deal lends new credibility to the technology and could mark a turning point in consumer adoption.

The world of mobile payments just expanded by 7,000 Starbucks locations, and scrappy entrepreneur Square is the beneficiary.

The deal is huge for the burgeoning world of mobile payments. Although big-name retailers including Home Depot have aligned with PayPal's mobile solution and many small businesses jumped on the mobile payments bandwagon as a competitive differentiator, the Starbucks deal lends serious credibility to the Square approach -- not to mention $25 million in new funding.

Under the deal, Starbucks customers will be able to use the Square payment application at any company-owned location starting in the fall (in addition to the existing Starbucks mobile payment applications for Android and Apple iOS devices.)

Square was also tapped to process Starbucks's U.S. credit and debit card transactions. What's more, small businesses that already use Square will be made visible to Starbucks customers through the Square Directory, which is helpful from a marketing standpoint.

Oh, and not only will Starbucks invest $25 million in Square as part of a Series D financing round, Starbucks chairman and CEO Howard Schultz is joining the company's board of directors.

"As the largest retail mobile payment platform in the U.S., we’re excited and proud to accept payments with Square,” Schultz said in a statement. “The evolving social and digital media platforms and highly innovative and relevant payment capabilities are causing seismic changes in consumer behavior and creating equally disruptive opportunities for business."

More than 2 million consumers and businesses can already use Square. In a note posted on the Square news blog, Square CEO Jack Dorsey said:

"Square began with a really simple idea: everyone should be able to accept credit cards. It should be easy and free to get set up, it should use simple technology people already own, and, most importantly, it should instantly adapt to any size business—from the person chasing a dream to the largest organization on the planet. By embracing Square, Starbucks has validated these ideas as powerful tools—not just for small businesses, but for smart businesses."

Square and other mobile payments companies are rewriting the rules for point of sale (POS) technology, especially among small businesses that were previously unable to afford expensive transaction processing fee or costly specialized POS technology. The Square credit-card swiper has made it much easier for small merchants and retailers to accept credit or debit cards.

Everyone from Google to Isis (the venture led by AT&T, Verizon Wireless and T-Mobile) and probably Apple is taking aim at the mobile payment and "digital wallet" space. Aside from Square, the company I'm watching closely is PayPal. Not only does it have serious stature among small businesses as a payment processor -- especially any business with an eBay storefront -- it has inked relationships with national retailers including Abercrombie & Fitch, Barnes & Noble,  Office Depot, and Toys “R” Us.

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