[jevinskie]

"Square will process Starbucks U.S. credit and debit card transactions":

Wikipedia says that Starbucks has $11.7 billion in revenue every year. I would assume that a majority of that revenue is through a card. I am not familiar with Square's revenue but I feel that this will at least double their transactions. Am I correct?

[kayoone]

Here in Europe (Germany) i have never seen anyone buying a coffee with a credit card. Maybe debit card, but that also is rare, its mostly cash for these small transactions. Most coffee shops dont even take any cards at all, even here in germany!

[gyaresu]

Norway: Cards for everything. There's no cost associated. Plus your bank card is also your ID. Chip & PIN.

[te_chris]

Same in NZ. I buy 1.50 lolly purchases from the dairy on my EFTPOS card. (No transaction cost).

[zalew]

if by 'Here in Europe' you mean 'here in Germany' then yeah, in Germany cards are unpopular among small business, but here in Poland they are quite common. There is often a minimum ammount in private grocery stores, but you can pay in every corporate store or cafe like Coffeeheaven and Starbucks.

[StavrosK]

Cards are likewise unpopular in Greece. You can usually use them pretty much everywhere, but almost nobody does.

[wtvanhest]

In the US, cards dominate

[sjs]

In Canada (at least in southern BC) almost everyone uses their credit or debit card for almost everything. Cashiers assume it and if you hand them cash they'll often have to back out of the transaction they already set up on the debit machine and sometimes even say "you're the first person to pay with cash today". It doesn't matter if you're buying a TV for $2000 or coffee for $2.

[colincsl]

I'm living in Germany for the summer and am surprised at how little people use cards here compared to the in the states. I love being able to use a debit/credit card so that everything I buy is logged. That means I can see everything (automatically tagged) using Mint. It also decreases the hassel of carrying as much cash around and going to the ATM as often.

On a tangent, it seems like people here have more of a negative view on credit cards - as if they assume you only use one if you can't actually pay. As long as you pay off your bill each month there is no real downside for the customer.

[ivancdg]

Here in France, people use debit/credit cards to buy EVERYTHING.

Some merchants discourage this by insisting on a 15 euro minimum charge. But by and large cards are used more often than cash. In restaurants it is common to split the payment of the meal and have each person contribute via a card.

It's been that way for years, although the frequency of card use is not as overwhelming as in the US.

At the supermarket, if I buy a bottle of water (0,18) I pay with a credit card. The majority of people do the same thing.

Caveat: many people, especially free-lancers, are paid in cash to avoid paying taxes on part of their income. Those people pay cash for everything. The give-away is the use of big bills (50, 100 euro bills) for small purchases.

[ErikHuisman]

Here in the Netherlands people are encouraged to use debit cards even for small amounts. Sometimes even with a small discount. The largest supermarket chain has way more "pin only" cashiers than pin and cash. It's cheaper and saver to process.

[jurre]

Yeah, but on the other hand it's hard to find a place where you can pay by credit card, even the large super market chains don't accept them. Although almost no one here uses them because are debit card system works very well.

[themckman]

I see a lot of talk in this discussion about debit cards. I currently have only a debit card through my bank with my checking account, however, always run it as a visa and NEVER run it as a debit card. A lot of times, for small purchases, I don't have to sign, so it's quicker then running it as debit since I'd have to enter my pin. I don't know why I never run it as debit. Something about entering my pin in line at a store with people around?

[textminer]

Spent a summer in Paris. Still chastened by a Monoprix cashier not being able to take my card for whatever reason, and a woman in line behind me telling me it's "not like America."

Also enjoyed the spectacle of tobacconists not knowing to swipe my less-secure magnetic strip, looking for my smart card chip.

[mikenon]

In the US charging a minimum for card transactions is usually a violation of your contract with Visa/Mastercard, and possibly a violation of the law in 10 states [1]. Are there similar contracts or laws in France?

[1] http://usa.visa.com/personal/using_visa/checkout_fees/

[twoodfin]

That's about checkout fees, not minimum charge amounts. Minimum charge amounts used to be forbidden by basically every merchant agreement, but thanks to Dodd-Frank and a lot of retailer lobbying, such contact terms are now illegal. Card issuers must allow a restriction on charge amounts (no more than $10 IIRC) if the retailer so desires.

[mikenon]

You're right. I meant to include Visa's complaint form, https://usa.visa.com/checkoutfees/contact.jsp which mentions the right for US retailers to set minimums up to $10.

It is worth noting minimums can not be set for debit card transactions.

[randallsquared]

Lots of small vendors have a minimum anyway, and Visa does nothing about it as far as I can see.

[dagw]

Here in Sweden you're not allowed to charge any sort of additional surcharge, but you are allowed to simply refuse accepting payment with Visa/Mastercard for purchases under a certain amount.

[amalag]

I wonder whose lobbying dollars we have to thank for this law.

[kitsune_]

Hmmm... I have been to France probably over ten times, I've never noticed this.

[kitsune_]

Switzerland... Usually cash. Sometimes Debit Card / Maestro (for larger purchases or if you don't have money on hand). People usually withdraw money from the ATM to pay for their purchases.

The idea probably is: It's easier and simpler to withdraw 200 bucks once and pay in cash at the different stores instead of having to enter the card and PIN every time you purchase something.

[anewguy]

That's not true. As a former cashier, I can say that cards are about the same speed as cash for small purchases, and much faster for large ones.

[teamonkey]

In the UK it's very common to pay with cards. It's even more cashless than the US or Canada, I feel.

[rahoulb]

I normally don't use a card for less than £5 though.

[SebMortelmans]

Belgium, probably nobody uses his credit card to buy coffee. We only use our credit card when we have absolutely no other option :)

[ry0ohki]

In Pittsburgh, 90% of the businesses that take Square are coffee shops for whatever reason

[bonzoesc]

Using Square is easy and has low fixed costs. iPad for under $400, iPad stand for $100, and you don't have to fuck with complicated 1990s credit card processors.

[ry0ohki]

No doubt, it's just odd it's all coffee shops and not other small businesses like Pizza, books stores, etc...

[btrautsc]

agreed - the few coffee shops i frequent in Chattanooga are Square users.

as well as my haircut place, a few sandwich shops, and a drink spot.

I feel like the Starbucks is catching up with their more efficiently operating 'local' competition. But its still a great move.

[jleedev]

The first place I ever used Square was a Pittsburgh coffee shop.

[bigiain]

"I would assume that a majority of that revenue is through a card."

Really? I almost never use a card for café type purchases. Maybe if I were buying a meal, but for a coffee or two I'm 99% likely to use cash.

(Note: mine is an Australia-centric view, perhaps things really are very different in the USA?)

[jcdavis]

Yes. The vast majority of payments I see in Starbucks in the US are via credit cards (or debit cards). With modern PoS systems, paying via card is faster and more convenient than cash, not to mention other benefits (rewards on cards, being able to better track spending)

[jimmytucson]

I used to work at Starbucks (albeit going on 5 years ago) and although I don't have the exact statistics or a perfect memory, it was not a "vast majority". If I had to guess, I'd say probably something like 2/3. Maybe the ratio increases if you count Starbucks gift cards.

Either way you look at it, Square's transaction volume surges with this deal. Good on both parties.

[zevyoura]

2/3 is kind of a vast majority; it means twice as many people are paying with cards than not.

[stonemetal]

My wife actually thinks it is rude to pay with cash or check when people are waiting behind you in line. Cards are the fastest way to pay, you don't even have to sign for purchases under a certain amount.

[seabee]

You don't enter a PIN? That process easily makes it take longer than cash.

[dmd]

No PINs for credit cards in the US.

[jim_kaiser]

We don't need to enter the PIN for most of the credit cards or debit cards in India, but we do have to sign it. Although it's just a formality. Usually when we split the bill, one of us signs all the receipts. :)

Now that being said, we get an SMS on every transaction, and for online transfers, we have two factor authentication using the mobile phone. We can call the bank any time to report a stolen card and would be covered for a fair amount of money depending on the account, as long as you report it within 24 hours as I remember.

[teamonkey]

Not for coffee-sized amounts at major coffee chains, no.

[stonemetal]

Debit cards require a pin, but credit card transactions less than some amount(I think it is $10) don't require anything other than the swipe.

[mcdavis]

Many debit cards can be processed as credit cards and then don't require a pin. My bank actually encourages using the debit card as a credit card by offering more points per purchase when you do it.

[clamps123]

What? Perhaps if you have down syndrome, but otherwise takes around 5 seconds. Swipe card, enter 4 digit pin, press enter. Faster than it would take the cashier to type in the amount you just gave him, much less make change.

[untog]

Down Syndrome? Really?

In any case, plenty of people do struggle with it- the old especially. But that's not the biggest factor. With a swipe everything is done by one person- the cashier. PIN entry requires a back and forth between customer and cashier, and I've seen plenty of cashiers not notice that the PIN entry has gone through, etc.

[robryan]

To add to this, often cafes enforce a minimum transaction size, such as $10, to use card. This means usually you only use card it you are grabbing lunch as well.

[Simucal]

I've read before[0] that it is actually a violation of a stores terms with Visa to enforce minimum transaction sizes. Those stores could potentially be reported to Visa and have sanctions placed on them (like an increased transaction rate). Interestingly, a merchant is allowed to offer a discount to people who pay by cash but they can't charge more for people paying by credit card.

[0] - http://www.msnbc.msn.com/id/11697094/ns/business-consumer_ne...

[ben1040]

After the credit card reform act went through in 2010, the card companies now allow for a $10 minimum.

http://consumerist.com/2010/09/amex-visa-mastercard-all-give...

[robryan]

Yeah it is annoying really. Especially for anywhere where it is common to buy things under $10. I think in the end most businesses would be better off just taking the fee hit as they would likely see increased business.

[georgespencer]

Starbucks don't.

[raverbashing]

Question

How does SB gets smaller fees through Square than negotiating directly with card providers?

How do card providers allow Square to sell their services cheaper than themselves?

And Square, you sure have a nice business, but the magnetic stripe is very insecure.

[encoderer]

Businesses don't get to negotiate with Visa and Mastercard. They negotiate with banks. And banks negotiate with large volume customers. That's why McDonald's can afford to take credit for a $1 ice cream cone without losing 33% of it to the card company.

Square has a lot of options in the way they process transactions, and they have a very high volume (now more so than ever)

[andyakb]

...right, so why cant starbucks negotiate with banks, much like mcdonalds does?

[notatoad]

because the parent is wrong, McDs doesn't negotiate with the banks either. they negotiate with a payment gateway provider. which is what Square is.

[shalmanese]

I'm guessing that they are going to try and get significantly lower fraud rates from pay with square (since it's a photo verification and not an insecure card strip) which can help push down rates.

They can afford to break even on the conventional credit card side of the business if they can make their margins on Pay with Square.

[jonknee]

But they are taking over all CC processing. Only a very small percentage of transactions will be made through the Square app.

[salman89]

Will have an impact also in terms of economies of scale. Their transaction fees _should_ go down as they process a larger number of transactions. Makes the partnership much more strategic, and it makes sense why Starbucks also invested - might have been part of the package.

[jeaguilar]

I'm having a hard time seeing how Starbucks has higher processing costs than Square. I think that Starbucks will continue to pay their low costs and be able to use Square as their platform. No reason Square couldn't process Starbucks transactions, too without needing to change their merchant accounts.

[salman89]

Sorry, should have clarified. I meant the transaction fees that Square pays.

[nchlswu]

That seems like a reasonable assumption.

A lot of posters are forgetting that significant portion of Starbucks revenue isn't from beverages at the till. Starbucks sells a lot of coffee related goods and processes a lot of revenue for gift cards and their mobile payment app which they've had for quite a while (Apple recognized in iOS6 Cards).

I'm very curious if Square is going to handle all transactions that aren't at the physical point of sale. My gut feeling is that a big chunk of credit and debit revenue is for gift cards and gift card refills and that could impact your estimate.

[philip1209]

Your first stated assumption is correct, but do not assume that all of Starbucks credit card transactions are processed through Square. Thus, the second assumption is not linear.

[ranvir]

This sounds like a huge coup for Square. And a little surprising that they could actually (or already) provide card processing at a better rate than Starbucks could negotiate on its own.