Brief:

• Starbucks, the coffee chain with more than 28,000 locations worldwide, said its mobile order and pay service grew to 11% of transactions in U.S. company-operated stores in Q1 2018 from 10% in the prior quarter. The Starbucks Rewards loyalty program helped to drive mobile growth with an 11% membership gain to 14.2 million from the prior year. Member spending made up 37% of U.S. sales.

• The company, which now has the ability to offer mobile order and pay to customers who don’t belong to its loyalty program, plans to ramp up the service to all customers in March, company president and CEO Kevin Johnson said in a conference call with investors. The growing popularity of mobile payment is leading the company to test cashless stores in the U.S.

• Starbucks is keeping an eye on blockchain technology, which distributes the same history of transactions among a network of computers and underlies digital currencies like bitcoin, as part of its efforts to be a leading innovator in mobile payments, Howard Schultz, executive chairman and former CEO, said on the call.

Insight:

While Starbucks isn’t planning to form a digital currency or invest in blockchain technology, the company is mindful of adapting to changing consumer habits, as seen with the commercialization of the internet since the mid-1990s. Digital currencies will need to be “legitimatized by a brand and a brick-and-mortar environment, where the consumer has trust and confidence in the company that is providing the transaction,” Schultz said. While the executive made it clear that Starbucks is not investing in blockchain at the moment, the chain's well-established strength in digital payments positions it to jump at the opportunity when the timing is right. 

Starbucks has been an early adopter of technologies like mobile payments and its customers have embraced these options, as evidenced by the fact that 11% of orders now come from mobile. The news that all non-loyalty customers will soon be able to take advantage of mobile ordering suggests this number will continue to grow. Overall, Starbucks' quarterly sales disappointed, with just 2% growth posted in the U.S.

More broadly, mobile payments are still in a nascent stage in the U.S. despite the pervasiveness of smartphones, suggesting something like blockchain-based payments could be further off. Online payments startup Stripe recently ended support for bitcoin because of challenges with completing transactions.

Customer familiarity with other payment methods like credit and debit cards has hampered the adoption of digital payments in the U.S., especially compared with urban areas of China that have leapfrogged to cashless transactions.

While blockchain technology may diminish the role of banks in providing transaction services through centralized methods like the Federal Reserve System, banks are investing in mobile payment services, according to a study this month by the Federal Reserve Bank of Boston. In addition to the 24% already offering mobile payments, 40% plan to do so within two years. More than two-thirds of respondents partner or plan to partner with third-party processors, and more than half are considering a partnership with a near-field communication wallet provider, the study found.