By Dan Primack
August 8, 2012

FORTUNE — Mobile payments company Square today announced that it has raised $25 million in equity funding from Starbucks Corp. (SBUX), as part of a larger strategic partnership that will see Square technology incorporated into most of the coffee chain’s 7,000 U.S. stores.

Not only will customers be able to use their Square smartphone apps to make their payments, but Square also will process all of Starbucks’ U.S. credit and debit card transactions (furthering the startup’s transformation from a hardware to software provider).

Starbucks CEO Howard Schultz, who is joining the Square board of directors, said during a CNBC interview that mobile payment has been accretive to transactions in test sites and that it would be a big “boost” for the company once rolled out nationwide later this year.

“We’ve seen a seismic change in behavior not only at Starbucks but in the entire marketplace with people using phones as their primary device,” Schultz says. “Right now over 25% of our customer base is using a Starbucks card, and I think they’re going to migrate off the card and onto the Square platform very quickly.”

See more of the CNBC interview with Schultz and Square founder Jack Dorsey (who also gets asked about future independence of his other little startup: Twitter).

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Square previously raised around $120 million in VC funding from Khosla Ventures, First Round Capital, Sequoia Capital, Visa Corp., Kleiner Perkins and Tiger Global. The Starbucks investment is the first part of a Series D round that reportedly valued the company at between $3 billion and $4 billion.

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