In his annual letter to shareholders in April, JPMorgan CEO Jamie Dimon warned that “Silicon Valley is coming” for the banking industry, specifically cited the lending and payments industry as two areas where his bank was seeing increasing competition.
JPMorgan just proved it can compete—and win—against Silicon Valley startups by securing a new partnership with Starbucks to process payments for the coffee giant. Chase will also help Starbucks upgrade their cash registers to support new chip cards. The shift is scheduled to be completed by next spring.
The deal underscores the staying power major financial institutions have in the payments industry. Starbucks previously had a high-profile deal with payments startup Square, but that partnership failed to live up to its initial hype. While startups can be appealing for their agility and relentless focus on technology, many merchants still crave the brand name, trust, and reliability associated with more traditional financial institutions.
The Square-Starbucks deal that just ended wasn’t a great one for the payments company. In 2012, the two inked a 3-year deal for Square to process Starbucks’ transactions, but in order to win the business, Square gave Starbucks a very attractive transaction rate. Over the course of the partnership, Square lost about $71 million, according to Square’s recent S-1 filing.
Starbucks has been a leading adopter of mobile technology and a coveted client among payment companies. First Data, which went public in the biggest IPO of the year, is still processing payments for Starbucks’ mobile transactions, which now account for 20% of all sales at the chain. Starbucks also recently announced that it’s expanding its Mobile Order & Pay service, and will support Apple Pay in 2016.