Square disclosed Wednesday in its IPO filing that it will discontinue its payment processing agreement with Starbucks.
The partnership, which formed in 2012, began to unravel last year when Starbucks stopped accepting payments from mobile devices running Square Order. But until August 2015, Square continued to process all transactions paid with credit and debit cards.
Starbucks had previously used Bank of America Merchant Services to process its payments and said the deal with Square would save it money. Many speculated this meant the deal was financially disadvantageous to Square.
Square, meanwhile, said it believed the deal with Starbucks would be "a valuable catalyst for building best-in-class enterprise infrastructure."
As of October 1, Square’s exclusivity provision with Starbucks was eliminated, and Starbucks began to pursue another payment processor. Square said it expected Starbucks to eliminate their partnership altogether before it sets to expire next year, and Square says it will not renew the partnership.
Today’s filing showed the terms were unprofitable for Square. Square lost almost $15 million in the first six months of 2015 from the Starbucks deal. Excluding the first six months of the three-year Starbucks partnership, Square brought in about 19 percent less than it spent processing payments for Starbucks.
So it’s kind of understandable that Square says its agreement with Starbucks won’t be renewed when it’s scheduled to expire in the third quarter of 2016—“at which point,” the company writes in its filing, “we would cease generating both Starbucks transaction revenue and Starbucks transaction costs, positively affecting our overall gross profit.”
These are the kinds of fixes Square needs to make to shore up would-be shareholder confidence ahead of its IPO. But it’ll be seeking its caffeine fix elsewhere.
Square’s disclosure comes as Apple announced last week that Apple Pay will be accepted at Starbucks in 2016.
