Starbucks leveraging m-commerce but what's brewing in India?

13 Aug, 2012

A lot, if you ask me, and not just because the US coffee chain Starbucks Corp. has recently done something smart and sweet to please cuppa-lovers in a hurry. On the face of it, it may not seem too unique – Starbucks has merely ensured that you can soon use Pay with Square – a free mobile payment app for iPhone and Android, across its network of 7,000 shops in the US. But unlike most m-payment tools, there will be many 'pluses' in terms of flexibility and security when it will be introduced this fall.

San Francisco-based Square, a three-year-old mobile payment startup founded by Twitter co-founder Jack Dorsey, will also handle Starbucks' credit & debit card processing business while Starbucks will promote local businesses that accept Pay with Square. Moreover, the coffee chain behemoth is also investing $25 million in the company and Howard Schultz, Starbucks' president, chairman & chief executive, will join Square's board.

But what does this app do? Although it's now public knowledge, let's take a quick look at its offering. Unlike Google Wallet that uses in-built near field communications (NFC) technology (and therefore, a no-go for many whose handsets don't support it), this app doesn't require NFC. You can simply input the card information into the app and set it up to automatically open a tab each time you enter an establishment that accepts payment via Square. Now use the Pay with Square directory to find a choice outlet. When you are there, the app will use your phone's GPS to alert the cashier (he/she also gets to see your profile photo – another stringent security measure, for sure). At checkout, you just have to tell your name and the cashier will process the payment. Ideally, a customer need not show his/her phone or card. But as of now, one has to show a Square bar code on his/her smartphone for payment processing.

Well, that is just the 'Starbucks' part of the 'Square' story. This app is also used by a network of small business and making payment is even easier there. The startup offers special dongles which can be plugged into smartphones to accept credit card payments. Square provides these devices for free but charges a small fee from merchants for each transaction.

Coming back to Starbucks and its long-standing 'tech' tradition (the company does it in real earnest and even hires from the tech community, bringing on board e-commerce entrepreneur Adam Brotman in 2009 to oversee its digital developments), this latest bid to promote mobile payment in a big way is hardly surprising. After all, it already has its own mobile payment app in place and also allows its customers to pay with contactless cards using (NFC). The 'Square' integration in its system is just another channel of doing it. But it is quite likely that the company is now eyeing a more fragmented and more micro people-to-people economy, pepped up by innovative m-commerce solutions from startups like Square, GoPago and Sevngr.

Tech brews that shake things up

One may feel that such measures have little relevance here in India since mobile payment is still lagging and reigning coffee chains focus more on plush interiors rather than tech enablement. Yet Starbucks, which has tied up with Tata Global Beverages in a 50:50 JV called Tata Starbucks Ltdfor its India foray, may actually score on that particular point when it tries to storm the bastion of established players like Café Coffee Day (CCD) and Barista Lavazza, besides UK's Costa Coffee and Australia's Gloria Jeans' Coffees (both MNCs have some early-mover advantage here although Gloria's pocket-friendly coffee cart concept has somewhat backfired and the company is now building high-end shops just like others).

As a twenty-some tech entrepreneur down south points out, "Coffee bar is a young concept and young people demand a lot more than the convenience of mobile payment. Sure it will enhance the market reach if Indian companies happen to adopt it in a big way but we are all ready to see some high-tech activities around when the US firm rolls out here – tech enablement in the real sense."

I think he has a point there. Like it or not, tech enablement has little to do with conventional cashless transactions done via pre-paid cards or gaining traction via loyalty programmes. These are merely convenient marketing strategies, followed by key Indian players who hope to make an impact before Starbucks makes an appearance here.

CCD, the V.G. Siddhartha-promoted largest coffee retail chain, has already introduced a pre-paid card called Cafe Moments to scale up its sales and customer traction. You can initially buy it for a minimum payment of Rs 250 and can reload it on an ongoing basis for any amount starting from Rs 100. Swiping this card to pay your bill will get special benefits like discounts, free beverages and surprise gifts. But there's a hitch. As of now, you can only use it at select CCD outlets across the country. And last I visited CCD's Facebook page, the company was running a KBC-style online quiz and bestowing 100 'Caffeine Points' for each correct answer which could be redeemed for free products within a specific time frame. Barista Lavazza, too, has launched a loyalty programme called Bean 'o' Holic where you can register your mobile number and start collecting redeemable loyalty points on every bill.

Still, such measures need scaling up when you are competing with a global chain who offers high tech hot spots abroad and has evolved as a targeted content provider – attracting a mixed crowd of college-goers, hipsters, tech junkies, entrepreneurs, and yes, even funding professionals who don't mind discussing new ideas in out-of-office, informal environment (again, vouched by a Delhi-based startup CEO looking to raise angel money).

In fact, Starbucks is one of the first coffee shop chains to offer the coffee-Internet combo, wowing customers with free Wi-Fi at all company-owned stores across the US. Plus, the coffee chain offers instant access to the Starbucks Digital Network, featuring news and content from partners like YahooWall Street JournalNew York TimesUSA TodayThe EconomistESPN Insider and others. Besides, one gets free iTunes downloads, digital comics and even documentaries.

Of course, Internet-in-a-mug is fast catching up in India, with chains like CCD, Barista Lavazza and Costa Coffee already offering high-speed Wi-Fi for free. But it is still not available across all their outlets while most of the small, home-grown coffee bars are yet to evolve into workplaces away from office-cum-chill-out zones. As for free-of-cost content networks in line with Starbucks Digital Network, there is simply none, at this point. A high-end gaming zone (we mean MMOGs, of course) a Skype party/meeting room and sliding wall projectors can also add to the heady concoction to keep people glued to their lattes and cappuccinos.

Finally, Indian companies can ideally do some soul-searching coming back to Starbucks' current focus on the m-commerce space. While Gartner estimates the number of mobile payment users to reach 340 million and a total transaction value at $245 billion by 2014, recent industry reports paint a hugely positive outlook for mobile payments in India. The bottom line is clear enough – cash, plastic money, e-payment (via web or mobile Internet) or even Mobile Wallet/NFC can be soon replaced by some amazing technologies. Next in line are branded payment apps (the Starbucks app is extremely popular in this space and we really look forward to something similar from Indian retail giants), point-of sale apps (like what Square offers) and self check-outs that will cut queues and costs – increasing both convenience and customer loyalty.

Going by the tech part of it, such initiatives don't reek of rocket science but it amply speaks of a culture of innovation, adaptability and awareness-generation that make businesses tick in the long run. At the end of the day, the symbiotic bond between coffee, tech and work will remain strong but it must have the right blend of innovation and value-creation that can nourish the highly urban and totally upmarket coffee culture in India. As long as tech (disruptive or otherwise) manages to touch day-to-day life and makes it a premium experience for all, both in terms of utility, comfort level and inspiration (cheers to India's J.K. Rowlings and Marina Fioratos penning their future best-sellers in Baghban-like coffee bars), a lot can happen over coffee.

(Edited by Prem Udayabhanu)