Starbucks Pushes Mobile Payments Into the Mainstream

Starbucks (s sbux) is taking mobile payments nationwide with the rollout of payments by smartphone at more than 7,500 locations. The payment system builds off a limited trial from last year and has the potential to push mobile payments into the mainstream on a national scale.

The system, which Starbucks claims is the largest mobile payment program in the country, works through a Starbucks Card Mobile App, available for iPhone (s aapl) and BlackBerry (s rimm) handsets. The app, which is loaded up with a user’s funds via PayPal (s ebay) or a credit card, displays a barcode which the register processes. After a user waves their phone at a Starbucks register for payment, the funds are subtracted from their Starbucks account.

According to the Seattle Times, the mobile payments system builds off Starbucks’ success with reloadable store cards and its push to attract mobile device users. The company said one in five transactions occurs through Starbucks Cards. Users added more than $1.5 billion on the cards last year, a 21 percent increase over 2009.

Starbucks said a third of its U.S. customers use smartphones, mostly iPhones and Blackberry devices. The chain has pushed hard to attract mobile users by making Wi-Fi free and launching a Starbucks Digital Network in stores for customers. By offering connectivity, the company can see which devices are using Wi-Fi, and therefore, which are most popular in its stores, making it easy to target specific platforms with apps. An Android (s goog) version of the app is reportedly in the works.

Starbucks users can manage their Starbucks Card account from their phone and add funds from existing cards by entering the card numbers into their account. Or they can tie a credit card to their account and request automatic reloads when their balance falls to a certain point. Users can protect their account data with a passcode on the mobile app and can also receive balance protection through their Starbucks Card account if they lose their phone.

The battle for mobile payments has been heating up recently with major players looking at near field communications as a way to process payments. Google (s goog) has enabled NFC in its latest version of Android while AT&T (s t), Verizon Wireless (s vz) and T-Mobile USA last year formed Isis, a mobile commerce network that uses NFC. The big hurdle for NFC is that merchants must be convinced to install readers at a couple hundred dollars a pop and use some form of payment standards. But without mass adoption of NFC chips in phones, merchants aren’t in a rush to make the investment.

Starbucks’ system doesn’t work off NFC, but is more of a digital card tied to the phone, a system that works with its existing infrastructure. It has the potential to further lessen people’s reliance on making purchases with cash and credit cards and could help teach people about the benefits of paying with their phone.  If Starbucks was really ambitious, it could look at letting other companies piggyback off its system for a fee, at least until NFC becomes more of an option. Either way, Starbucks is helping forward the debate on mobile payments. We’ll now get to see what the demand is for paying for a latte by phone.

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