Starbucks Manager: 'Fan of NFC'; Keeping Bar Codes for Now
While the head of innovation for the popular Starbucks prepaid payment card declares that he is a "big fan of NFC," the giant coffee-shop chain is not about to wait for NFC phones before introducing mobile payment, the manager told NFC Times.
As the company continues to expand the trial of its Starbucks Card Mobile App for smartphones–this week announcing another 300 stores in the New York City area would join the test–Chuck Davidson, category manager for innovation for the Starbucks Card, said the 2-D bar code technology the app uses is delivering on its promise.
"Mobile payments could be powered by NFC someday, but bar codes are our proxy right now," Davidson told NFC Times. "My job is innovation, and while I’m a big fan of NFC, I feel a tremendous need to get to learning about mobile payments as quickly as possible. Our thinking was to get in the game and learn about this from a customer behavior standpoint, and the quickest way was through bar-code technology."
The introduction of the Starbucks Card Mobile App to New York City, announced Monday, comes after the Seattle-based chain has had nearly a year to evaluate its performance in 16 stand-alone stores in Seattle and northern California, and units inside more than 1,000 U.S. stores of mass merchandiser Target.
As in the original test stores, Starbucks will equip the 300 company-operated stores in New York City and on Long Island with 2-D scanners capable of reading bar codes displayed on screens of customers’ iPhones, iPods and, more recently, BlackBerry handsets.
After the customer scans the bar code at the point of sale, Starbucks deducts the amount of the purchase from his Starbucks Card account over the network. The app also lets cardholders track the card balance, add to it with a major credit card, check the status of rewards points and locate nearby Starbucks outlets.
Customer Interest in App Grows
Davidson said stores in the initial test phase have seen customer interest in the mobile application grow steadily. While he wouldn’t provide hard numbers on the volume of transactions, Davidson said the trial has exceeded expectations in terms of customer use and performance of the system. The key to its success, he said, is upfront development work that focused heavily on user-friendliness.
"People say they love using it," he said. "It’s very intuitive and you don’t need to be a propeller head to get it. We wanted to provide customer utility with this, and we think we’ve also got the 'cool factor' working for us as well."
Davidson said he’s been surprised that customer use of the app continued to build well after its introduction. Customers have consistently reported how "fun" it is to use smart devices to pay, suggesting that users are comfortable with the mobile-payment concept. The app is also fast. Davidson said project team members have timed the mobile-payment transaction and found it to be speedier that either cash or plastic–whether debit, credit or Starbucks Card.
"I was afraid we’d drop off after seeing some big usage at the start," he told NFC Times. "But we didn’t see that, and instead saw the big bump followed by a gradual increase."
But is it Secure?
Some industry observers point out that bar-code-based payment is much less secure than NFC or cards using smart card technology. For example, a fraudster could make a copy or take a picture of a customer’s static bar code and simply put it in a PDF or JPEG file on his own phone to use.
Davidson said there have been no documented cases of the Starbucks Card Mobile app getting hacked. And while users are not required to enter a pass code when they open the app, it’s an option for those who don’t mind for the transaction to take a little bit longer.
Drew Sievers, co-founder and CEO of U.S.-based mFoundry, which developed the app for Starbucks, downplays the security issue as well. He said if bar codes are generated dynamically so that they could be changed on customers’ handsets frequently and if the application allows for their proper storage on handsets, security risks are minimal. Plus, the risk of losses from hacks is mitigated because the Starbuck Card is a closed-loop payment scheme. Of course, any dynamic updates to the bar codes on customer phones would require a mobile-network connection to complete.
The bar codes in the Starbucks Card Mobile app, however, are not dynamically generated, Sievers confirmed, so they remain static on the phone.
Einar Rosenberg, an NFC expert and chief technology officer for Narian Technologies, observed that despite the clear success of the Starbucks test, there is a security gap with bar codes that looms as a major hurdle to widespread adoption of bar-code mobile payments. And he said it argues for a quick transition to NFC phones, once the devices become available.
"The Starbucks product shows that mobile payments is not only accepted by consumers, but also is a benefit to retailers," he said. "What I don't agree with is using bar codes for payment since it’s less secure, and more importantly, it doesn't have the commitment from financial institutions and standardization for payments, like NFC does."
Sievers, whose company develops mobile apps with an emphasis on financial services, sees NFC as the most popular mobile- payments platform of the future. But such companies as Starbucks that want to get their feet wet in m-payment aren’t willing to wait for the various members of the NFC ecosystem to iron out their differences.
"This bar-code technology is being used in mobile applications that were envisioned as being managed by NFC, but since there’s been no agreement on a business model to take this to market, with too many stakeholders trying to figure out how to get something out of it for themselves, innovative companies have made the decision not to wait and instead get cracking via bar code technology," Sievers told NFC Times. "Bar codes are ubiquitous and easily adaptable to any handset. They’re a logical stepping stone to contactless open-loop payments."
Until NFC-enabled phones and other contactless-mobile payment options become available, Sievers said closed-loop bar-code applications like Starbucks is deploying are poised to help both merchants and consumers get more comfortable with mobile payments.
"It takes less time to shift customer behavior now because of the pervasiveness of technology," he said. "Comfort with using ATMs took longer than mobile banking; mobile banking was taken up faster than online banking, which was taken up faster than ATM usage. Now, there’s a direct correlation between the penetration of smartphone technology and a shift in consumer behavior for seeing phones as something more than just a phone. What Starbucks is doing further validates mobile payments and benefits the entire industry."
Adding Features, Android App
Of course, Starbucks Card Mobile transactions will remain a minuscule percentage of total Starbucks Card spending for some time to come. The chain recently released some figures on customer use of the card, noting that users are on track to load more than $1 billion in their card accounts this year. As of the end of the third quarter, sales of cards were up by 17% compared with last year and reloads on existing cards increased by more than 59% from last year.
Davidson told NFC Times that plans call for expanding the exposure of the mobile-payment service, including adding features, though he did not elaborate.
"For now, it's all about adding more stores and making sure that we're letting more people try this,” he said. “We have a smartphone platform we're tethered to now, and we'd like to add more to it, and maybe extend it to other areas besides mobile payment and add more features and functionality."
And he indicated Starbucks would offer a payment app for Android smartphones, noting that the chain has been “hearing quite a bit” from customers that they want it. Starbucks introduced an app for BlackBerrys early last month and said the iPhone and BlackBerry users account for a combined 71% of its smartphone-packing customers.
As for NFC and other forms of contactless-mobile payment, Starbucks will be fully engaged in evaluating what they bring to the mobile-payments picture, Davidson said.
"NFC is appealing, but we’re very comfortable with the bar-code platform," he said. "I’m responsible for the innovation pipeline with the Starbucks Card, and so I’m looking at everything. But it’s a matter of where NFC is sequenced on the roadmap. When do customers have NFC phones whether they know it or not, and when do they not have to contend with dealing with multiple handset makers and new carrier accounts? We don’t know how far out that is, but when it meets our criteria for helping people to pay with their phones, let’s think about it."