Authors: Mike West and Alex Bakker

Square and Starbucks announced on August 8, 2012 that they were entering into a partnership in mobile payments. Square, a three-year-old startup, will be processing payments for all 7,000+ Starbucks stores in the U.S. Square will also enable a "Pay with Square" app, which utilizes location services to automatically detect when a customer enters a store. The customer will then be able to complete a purchase without even taking their phone from their pocket. Square charges 2.75 percent per transaction, slightly higher than Paypal at 2.7 percent, but many expect that Starbucks is getting a preferred deal.

Starbucks selected Square over more-established rivals for the partnership, including PayPal, which has more than 106 million users in the payments (but not mobile payments) space and Isis, a consortium of  telco Master Brands Verizon, AT&T, and T-Mobile that is also producing a “mobile wallet.” Isis has announced partnerships with Coca-Cola, Aeropostale, Dillard's and Macy's. PayPal counts among its adopters HomeDepot and Office Depot stores. VeriFone Systems, the world leader in mobile payments, lost eight percent of its market cap immediately following the announcement, and another of Square’s competitors, USA Technologies, lost four percent.

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