The partnership also means that customers will eventually be able to use the Square Directory from their mobile devices to find other nearby small businesses using the technology.
Starbucks didn't disclose how much it expects the new technology can cut its credit and debit card transaction costs.
Cutting interchange fees paid to banks is a key issue for many large and small retailers, some who have taken banks to court over the fees, Gartner analyst Avivah Litan said recently.
The Home Depot recently deployed PayPal payment system on terminals at nearly 2,000 U.S. stores. The system allows Home Depot customers to enter a mobile phone number and PIN to make a payment, instead of using a credit card.
A Home Depot spokesman said in July that the PayPal technology was installed in part to lower what he called "abusive" interchange fees.
Jeff Kagan, an independent analyst, said that the $25 million investment by Starbucks in Square shows that "mobile payments will be very important going forward [and] Starbucks will play a role in that world."
For customers, he added, "it's exciting to be on the cutting edge using this new technology."
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