How Starbucks Beats Apple, Google, and the Rest of the Tech in Mobile Payments

Consumers have been waiting a while now for mobile payments to transform the world. First cameGoogle Wallet, which launched in 2011 but never went mainstream. It failed to gain support from most major banks, credit card companies, and wireless carriers due to privacy and business concerns, and two years after its launch, Google Wallet had been downloaded fewer than 10 million times.

ApplePay was supposed to succeed where Google Wallet failed, but while the user experience has been lauded, actual usage has been underwhelming. Arecent survey of 170,000 households that own the iPhone 6 showed that only 9.1% had used the new mobile payment platform on lessthan 5% of eligible transactions. The majority of iPhone 6 owners who didn't use Apple Pay said they didn't know how it worked or didn't need it. Apple also encountered hiccups when pharmacy chainsRite AidandCVSpulled Apple Pay due to their membership in the Merchant Customer Exchange, a group of retailers that is developing its own mobile payment platform that will eliminate credit card processing fees.

Oddly enough, the company that is killing both Apple and Google in mobile payments isStarbucks.

From espresso frappes to mobile appsThis seemingly surprising development actually makes sense. The most necessary component for mobile payments to work isn't the technology, but a customer base that wants to use it. Starbucks has that.

Last year, 90% of all mobile payments in the U.S. were made at a Starbucks, and CEO Howard Schultz said the volume is growing by nearly 50% annually. Every week, 7 million mobile transactions are conducted at Starbucks, making up 16% of total transactions.

Starbucks is able to to do this for two reasons. First, it has been incentivizing customers for years to pay within its ecosystem through the Starbucks Card and its loyalty rewards program, which gives customers a benefit for paying with the app. Second, Starbucks is the ideal environment for mobile payment, since speed of service is key and the clientele is upscale and tech-savvy.

How Starbucks stays aheadSchultz has made a pet project out of mobile commerce, and he has no plans to sit still in the fast-moving payment space. Last week, Starbucks announced a new program called "Mobile Order & Pay," which will allow customers to order in advance and simply walk in and pick up their order when it's ready. The company is also offering food and beverage delivery through the Mobile Order & Pay system.With these initiatives, Starbucks has doubled down on its mobile advantage. After all, from the customer's perspective, the need for mobile payments is pretty small. That is to say, it's not hard to pull a credit card out of your wallet. But mobile ordering, especially with delivery, presents a significant benefit to the customer and is something that a stand-alone tech company like Apple or Google can't provide.

However, the most intriguing piece of Starbucks' plan is, per a press release, as follows: "The success ofStarbucksmobile payment and loyalty programs will also allow the company to bring to the table the constituent pieces necessary to build a consumer proposition for a mobile payment network with retailers outside of the Starbucks store footprint in fiscal year 2016." Essentially, Starbucks aims to create its own payment network with partner retailers, similar to the Merchant Customer Exchange or what Apple Pay is trying to achieve. If the coffee company can transition its own success to the network it aims to create, it could solidify Starbucks as a true leader in mobile payments.

For Apple and the others, the challenge is clear: Not only do they have the additional hurdle of convincing merchants of their system's utility, they must also match the value proposition that Starbucks provides. Enhanced security, Apple Pay's primary selling feature, might not be enough. Mobile payment providers might also need to match the rewards, mobile ordering, and delivery benefits that Starbucks offers. And without their own customer base, tech companies could be at a surprising disadvantage when it comes to mobile payments.

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Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Starbucks. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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