Square, the mobile payments start-up, took a big step towards the mainstream on Tuesday when Starbucks Corp. announced it would be using the cashless payments system across its network of coffee shops in the U.S.
Starbucks will also invest $25-million in the company, which was created by Twitter co-founder Jack Dorsey. In addition, Howard Schultz, Starbucks' chief executive, will join Square's board.
Square rose to prominence with its small devices that, when plugged into a smartphone, allow the phone to take credit card payments. It has also created a service that allows consumers to link a credit card to their mobile phone and pay for items in stores by just using the handset.
Square's services have helped a number of smaller businesses take credit card payments without having to invest in expensive till systems, but the greater prominence it will gain from being in 7,000 Starbucks across the U.S. will probably give the company an edge over competitors such as Sweden's iZettle and eBay's PayPal.
Analysts are predicting that mobile phones will become a key way of making payments, replacing many cash transactions, but no single mobile payments technology has emerged to become the mainstream standard.
"When Starbucks builds the Square directory into their apps and in-store digital network, it gives Square new visibility, driving more customers to opt-in to Square," Mr. Dorsey wrote in a letter posted on the Square website.
Mr. Schultz said mobile payments "are causing seismic changes in consumer behaviour and creating equally disruptive opportunities for business."
Square provides its devices for free but charges a small fee, 2.75 per cent, for each transaction it handles.
Starbucks has been a pioneer in cashless payments system, and has its own mobile payment app which has proved popular with customers. Customers will still be able to use the Starbucks app to pay for their coffees, the company said.
Starbucks also allow customers to pay with contactless cards using near field communications technology, meaning that the coffee shop chain has fully hedged its bets on which of these systems will eventually catch on best.