Apple’s iPhone is creating something of a revolution in the way people communicate. Now mFoundry and Starbucks have teamed up to harness the power of the iPhone to create something which has the potential to revolutionise the way people pay with and manage gift cards. Charles Davis reports.
In a trend quickly turning into a craze, developers are creating iPhone applications – better known as ‘apps’ – at blinding speed. It was only a matter of time before payments became the focus of apps, which can turn smart devices such as Apple’s iPhone into fully functional payments terminals in the capable hands of talented software developers.
In what truly looks like a killer app, the coffee giant Starbucks teamed with the mobile payments platform provider mFoundry to create Starbucks Card Mobile, an iPhone app that allows for mobile balance checks and refilling of Starbucks gift cards, which the company has expanded into a customer loyalty programme by offering discounts, free refills, and two free hours of precious Wi-Fi to cardholders.
And in two tantalising pilot tests in eight stores in Seattle, Washington, and eight in Cupertino, Mountain View, Sunnyvale and San Jose, California, the Starbucks Card Mobile app can use a barcode to replace the plastic gift card altogether.
The barcode app allows the cardholder to manage several cards at one time, delete an expired card if the cardholder does not want to recharge it, or consolidate several gift cards on the mobile account.
That idea – moving the prepaid gift card onto the mobile platform – is truly revolutionary and can open the door to all sorts of mobile retail promotions, from text messages offering instantly redeemable discounts to geolocation pop-up deals driven by other promising iPhone apps such as Foursquare. Foursquare combines geolocation services with a game of collecting points and earning recognition for using the service more and answering questions along a trip.
It is not hard to see how a combination of geolocation apps and prepaid loyalty cards can work in tandem to create a game-changer in terms of customer loyalty and retention, all driven by payments.
Mobile commerce is being driven by increased adoption of smartphones capable of internet browsing. In the second quarter of 2009, 28 percent of all handsets sold in the US were smartphones, up from 19 percent a year earlier, according to consultant NPD Group.
And more Americans will be able to gain access to the mobile web soon. One-third of consumers without a web-enabled phone plan to purchase such a device within the next year, according to a survey of 3,305 US consumers conducted in March by comparison shopping site PriceGrabber.com.
Mobile payments on the rise
Demand for mobile payments is spiking, as the number of smartphones grows. In June this year, 18 percent of 1,166 US survey respondents ages 18 to 25 said they had sent funds, paid someone or paid for something other than phone accessories using their mobile phones.
That is up 11 percentage points from 7 percent of respondents who reported making similar mobile payments in May 2008, according to the consultancy Mercatus. Among the respondents to the June survey, 14 percent of those ages 26 to 34 reported having conducted such mobile transactions, double the 7 percent from that age group who said so in May 2008.
Starbucks’ test of barcode-based prepaid card payments represents by far the most ambitious effort to date by a US retailer. Mobile barcode systems have typically been rolled out in far smaller numbers and have been used largely for short-term advertising campaigns.
While Starbucks has been battered by the recession and has closed several hundred stores in the US, it still operates or licenses over 10,000 outlets in the US and thousands more overseas.
Starbucks reports that one in seven transactions at the coffee chain involves one of its gift and loyalty cards, so eliminating that need for a physical gift card is a logical extension of a widely successful programme.
“Customers love the app and we are getting requests to add stores to the trial,” a Starbucks spokesperson told EPI.
“We have exceeded 500,000 combined downloads of the two apps in the first week of their availability and both applications are already top rated in the AppStore Lifestyle category.”
Consumer acceptance high
In fact, the MyStarbucks app has been among the top-five free applications downloaded in the overall AppStore during the first week. This is quite an achievement given there are 85,000-plus applications in the AppStore, which was created by Apple to enable users of its iPod Touch and iPhone devices to browse and download apps.
Starbucks is also pleased with the usage rates, as over 35 percent of the customers who downloaded the Starbucks Card Mobile App entered their Starbucks Card Numbers and are using the App.
“We wanted this to be about more than just technology,” the spokesperson said. “We had to create a convenient payment experience for our customers and partners.
“Our initial beta testers have noted how much fun it is to hold a phone up to the scanner, hear it beep and then see the update in their balance, so we are looking forward to receive feedback from our customers who use this functionality in select stores in Seattle and Silicon Valley.”
The mFoundry system displays a unique image on the screens of iPhones and iPod Touch devices. The images consist of black-and-white squares arranged in a checkerboard style, and function like standard barcodes. They can be scanned with the optical checkout scanners in use at many retail stores. The software also allows users to reload their cards or lock them with a passcode.
mFoundry expects to announce other major retailers offering similar apps soon, and thanks to the attention surrounding Starbucks, the company expects to close two more deals in October with companies that have been considering the technology.
The mFoundry technology can also work on Research in Motion’s Blackberry devices and phones that use Microsoft Windows Mobile software, depending on what retailer clients want. The technology works with optical bar-code readers that take a digital image of the code.