By John Heggestuen, Business Insider
Starbucks's mobile payment and loyalty app program is phenomenally successful. The company has announced it's used by 10 million Starbucks customers for an average of nearly 5 million weekly transactions in the U.S.
That success is largely a function of the company's fantastically loyal customers who come back day in and day out. It also helps that Starbucks offers a low-cost product (read: coffee), and incorporates app rewards, like free drinks on birthdays, that encourage usage of the app.
In total, Starbucks drove over $1 billion in mobile payment revenue in 2013, according to BI Intelligence estimates. These are in-store transactions that Starbucks customers complete by using their phones at the register. Our estimate is based on past numbers provided by Starbucks on mobile payments as a percentage of their U.S. and Canada revenues, our estimate of average transaction values, and growth rates implied in Starbucks's public statements about the number of mobile transactions handled at their retail locations. (See chart, below.)
- Previously, we had forecasted that total mobile payments in the U.S. last year reached $30 billion. That means that Starbucks drove a full 4% of U.S. mobile payments volume in the year. We define mobile payments as transactions at physical locations assisted by mobile devices on the consumer or merchant side.
At BI Intelligence, we are putting out in-depth coverage on the larger digital payments industry, tracking how Starbucks and other businesses are evolving their payments strategies, and which new entrants in the payments space are having the most disruptive effect on the industry.
Starbucks has done an incredible job of making mobile payments valuable to consumers, even as many other mobile payments companies, and retailers offering mobile payments, still haven't figured out the formula.
Dunkin' Donuts is soon going to enhance its own mobile payment app with a loyalty program, and it will be interesting to see whether another beloved coffee company will have the same success, or if Starbucks has figured out something special about what its customers want.
Starbucks is doubling down on its mobile payments business. The company created a chief operating officer position to be filled by former CFO Troy Alstead, so that CEO Howard Schultz can focus more on the company's evolving payments business.
11 Facts About Starbucks That Will Blow Your Mind
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.