When you hear about a coffee chain and embedded finance, you likely think about Starbucks. While this story is not about them directly, it seems like Starbucks was the inspiration for the product.
Compass Coffee is a US coffee chain with a rather small footprint: 16 stores in Washington, DC, and Virginia. The company was exploring ways to allow customers to order a coffee ahead of time and pick it up in the store. Since they knew the Starbucks solution, they were wondering if they could build an order system that does not increase payment costs substantially.
The result is an embedded wallet, for which the coffee leveraged the infrastructure provider, Ansa. The solution resulted in a 30% increase in order frequency, lowered payment costs by 28%, and increased revenue by 26% (for wallet users vs. non-wallet users).
Such a service typically targets loyal customers who shop often with the same merchant. With the embedded wallet, the frequent customer would top up a certain amount into the wallet (perhaps combined with an initial financial incentive) and use the account balance for future purchases. Each purchase paid with the wallet is basically a peer-to-peer transaction between the user and the merchant’s wallet and is either free or much lower than a card transaction. A customer with a wallet is obviously more likely to shop again, especially if there’s a balance on the wallet.
Additionally, the merchant can use the wallet infrastructure to pay out financial rewards and refunds. A reward paid into the wallet can only be spent at the merchant, which reduces the costs of the promotional campaign. If a customer requests a refund, the merchant can ask them if they want the refund into their wallet, potentially offering a financial or other benefit when choosing this option.
Personally, I like the Compass Coffee wallet because it shows that small companies (Compass Coffee has less than 200 employees) can leverage embedded finance for their benefits as well.
