Wednesday, August 8, 2012 at 12:29 am.

Square Signs Up Starbucks

Starbucks Frappuccino with puddingA surprising and interesting move. Here’s the press release and here’s Square CEO Jack Dorsey’s memo. In short, Square will start processing all of Starbucks’ credit card transactions and Starbucks stores will accept Square as a form of payment.* (Starbucks is also investing in Square.)

This is obviously a huge deal for Square — and a fascinating one for Starbucks, too, because it didn’t need Square.

Starbucks was already far ahead of its peers and competitors with things like its iOS-app payment barcode, in-house loyalty program, etc. And that’s where it’ll be particularly interesting to see how things play out. As a Starbucks “gold card” holder, will I have to stop earning free drinks to use the Square stuff? If so, which will I choose? Etc.

(Also, will the Starbucks affiliation drive mom-and-pop coffee shops away from Square? Probably not.)

Either way, Square seems to be picking up steam — as a payments processor, yes, but also as a sort-of operating system for retailers. That is, notably, the direction Groupon is trying to head in, too. And Starbucks CEO Howard Schultz recently left Groupon’s board, and just joined Square’s.

*Correction: Starbucks will not initially support the “pay with Square” tab feature where you just say your name and that’s that, as I had initially written and assumed. It may someday, but for now, its Square support will only be through barcodes: Starbucks cashiers will manually scan a barcode in your Square app using existing point-of-sale infrastructure. More here.

Related: What It’s Like To ‘Pay With Square’