Square ends their cushy deal for Starbucks

Starbucks (SBUX) will be losing a cushy credit card payment processing deal with upstart Square, according to Square’s initial public offering filing.

The processing deal, announced back in 2012, has been a huge money loser for Square since then.

When the deal generated massive publicity because Starbucks also agreed to invest $25 million in Square and CEO Howard Schultz even joined Square’s board of directors. Then the San Francisco-based payments company suffered huge losses of more than $70 million over the next few years completing the back-end processing for Starbucks customers.

However Starbucks likely benefitted from below-cost processing in the long run.

But Square says in its filing that it renegotiated the deal in August to raise Starbucks fees and let the coffee maker have the option to seek other programs. However the renegotiation also ended Square’s exclusivity with Starbucks.

Starbucks recently announced that it would begin accepting Apple’s (AAPL) mobile payment service starting late this year, though the coffee chain will still need to replace Square as the back-end processor for all its payments.

“We anticipate that Starbucks will transition to another payment processor and will cease using our payment processing services prior to the scheduled expiration of the agreement in the third quarter of 2016,” Square said in its filing. “In any event, we do not intend to renew our payment processing agreement with Starbucks when it expires.”

Square has deals with some well-known retailers like Godiva, Japanese department store Uniqlo and Whole Foods (WFM). But about 90% of its business still comes from much smaller outlets like the Lavender & Honey Espresso bar in Pasadena or printmaker Satchel & Sage in Austin, Texas.

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