Starbucks teams up with Square, will accept Pay with Square

Square, the San Francisco-based mobile payments company co-founded by Twitter founder Jack Dorsey, has signed a wide-ranging agreement with coffee chain Starbucks (s SBUX) and as part of this agreement, Starbucks will be able to accept payments from Square’s Pay with Square application. As part of this new deal, Square will also process Starbucks’ U.S. credit card and debit card transactions.

Starbucks is going to invest $25 million in Square as well. Prior to the Starbucks agreement, Square was said to be valued at $3.2 billion valuation and was rumored to have raised $200 million in funding. Here are the partnership terms from the press release jointly issued by two companies.

  • Customers will be able to use Pay with Square, Square’s payer application, from participating company operated U.S. Starbucks stores later this fall, and find nearby Starbucks locations within Square Directory;
  • Square will process Starbucks U.S. credit and debit card transactions, which will significantly expand Square’s scale and accelerate the benefits to businesses on the Square platform, especially small businesses, while reducing Starbucks payment processing costs;
  • Using Square Directory, Starbucks customers will be able to discover local Square businesses — from specialty retailers to crafts businesses — from within a variety of Starbucks digital platforms, including the Starbucks Digital Network and eventually the Starbucks mobile payment application;
  • Starbucks will invest $25 million in Square as part of the company’s Series D financing round;
  • Starbucks chairman, president and ceo Howard Schultz will join Square’s Board of Directors.

This is a significant boost for Square which has been in competition with the likes of eBay’s (s EBAY) PayPal division. Square, which was started to tap into the growing people-to-people economy, has broadened its ambitions. Signing up Starbucks can be viewed as a big part of the company’s desire to go after bigger retailers in addition to independent retailers.

The deal gives Starbucks another way to accept payments in store at its 7,000 U.S. locations. It currently has a successful mobile payment system based on barcodes. But now, it will have a way for Pay with Square users to pay at the register using their phone. Pay with Square allows users to open a tab at a business and pay by just using their face, which an employee can recognize on their Square Register iPad app.

It’s a big win for Square, showing how it can move up into big retail. Here’s what Square CEO Jack Dorsey said in a letter:

Square began with a really simple idea: everyone should be able to accept credit cards. It should be easy and free to get set up, it should use simple technology people already own, and, most importantly, it should instantly adapt to any size business—from the person chasing a dream to the largest organization on the planet. By embracing Square, Starbucks has validated these ideas as powerful tools—not just for small businesses, but for smart businesses.