Big Chains Bring PayPal In-Store

Discussion
May 29, 2012

PayPal has reached deals with 15 retailers, including Toys "R" Us, J.C. Penney and Barnes & Noble, that will allow consumers to pay for purchases with their cellphones as part of its promise to bring its service to physical stores.

The online payment system, owned by eBay Inc., is also now rolling out to 2,000 Home Depot stores, where it has been testing the service since January. While PayPal didn’t land Target or Walmart, the diverse group of signups includes Abercrombie & Fitch, Advance Auto Parts, Aéropostale, American Eagle Outfitters, Foot Locker, Guitar Center, Jamba Juice, Jos. A. Bank Clothiers, Nine West, Office Depot, Rooms To Go, and Tiger Direct.

The in-store mobile payment process will allow customers to pay for purchases using only the mobile phone number associated with their PayPal accounts along with a PIN. The funds will be taken directly out of their PayPal accounts, as with a debit card.

"Consumers are relying on technology now more than ever to simplify their lives when it comes to shopping and paying, and retailers must adapt to this shift or risk becoming irrelevant," said David Marcus, president, PayPal, in a blog entry unveiling the new retail partnerships.

While PayPal is seen as an immediate threat to Google Wallet, mobile payments overall are considered a longer-term concern for major credit card companies due to the potential for lower service fees.

But in announcing its 15-store deal, PayPal largely played up its ability to provide greater access to customer data as the main incentive for retailers.

To deter credit card fraud, existing payment networks typically share little information with stores beyond the last four digits of a credit or debit card. Instead of credit card data, PayPal uses a customer’s e-mail address to provide safer access to the actual name and other information on shopping habits, consumer locations, product preferences and recent product searches. That promises to help retailers send coupons and other offers to users’ smartphones when entering a store rather than seeing discounts spat out upon POS checkout.

Such deals are expected to likewise entice consumers to switch from plastic to mobile payments.

"We’re helping merchants connect with consumers at every stage in the shopping cycle," wrote Mr. Marcus. "Before they come into the store, while they’re in the store, or even after they’ve left. We’re able to drive consumers through a retailer’s doors with relevant offers, coupons and discounts, then maintain a relationship with that consumer that keeps bringing them back to the retailer, in store or online."

PayPal also last week signed agreements with VeriFone Systems and Equinox Payments to get its payment technology onto their checkout terminal networks.

Discussion Questions: What do you think of the potential value of the customer data provided by PayPal through its POS service? What hurdles do mobile payments still face in both retail and consumer adoption?

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20 Comments on "Big Chains Bring PayPal In-Store"

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Ken Lonyai
BrainTrust

I’ve taken a stand that there’s more in this for PayPal than retailers. Mobile couponing is full of competitors and still in its first iterations. Anyone that offers it as a service will have to work hand in hand with retailers (unlike Groupon) or they won’t see merchants adopting them for long.

Visa/MC/AmEx are not about to roll over, even if that means being more open and in greater “partnership” with merchants to make their mobile/digital payment solutions the standard.

In the end, coupon/incentive overload will backfire, no matter how “on target” the offers are. There is only so much disposable income out there and people will get annoyed quickly if every payment outlet, location based app, and retailer keep pounding them with yet another special offer.

Max Goldberg
BrainTrust

Retailers currently have reams of information about consumers, but few use the data. Are retailers now willing to set up the infrastructures, staff and budgets necessary to target individual consumers?

The biggest hurdle to retail and consumer adoption will be security. If PayPal and Google Wallet can prove to consumers and retailers that this data is secure, it could lead to rapid adoption. And if retailer fees are lower with PayPal and Google, it could portend a major disruption in the way that consumers pay for their purchases.

David Dorf
Guest

Retailers have lots of upside for using PayPal — potentially less in fees, faster checkout, and access to consumer data are the main ones. However, it’s not as compelling for consumers. Existing PayPal users will jump on this bandwagon, but I don’t think there’s enough value to convert existing credit/debit users. With a credit card, I get fraud protection, ability to dispute charges, points, and acceptance everywhere. With PayPal I lose many of those benefits.

Paula Rosenblum
BrainTrust

I know there has been a lot of talk about NFC, but PayPal appears to be sidestepping that technology and using a version of what it has today. From a security perspective, I think consumers will prefer to give credit card info to fewer companies … that’s why I personally like using PayPal.

The customer data is a great idea, but it may fail the privacy sniff test. I believe the reason payment processors typically don’t share detail customer data with retailers is a legal one, not a choice. They can provide general geographic data and (I think) basket data and that’s about it. The thought of the whole universe getting my email address and purchase info promises a nightmare of re-targeting efforts. I think that one may fall by the wayside.

Frank Riso
BrainTrust

I do think this is a great opportunity for both the consumer and the retailers, as well as for PayPal. Google Wallet and other forms of mobile payment will also be there for the industry. Today we have many choices for our credit cards, issued by our banks or branded to our favorite airline for points, etc. The same will be true for mobile payments. Consumers will select the service that meets their needs and that could be more than one mobile payment provider. I think it will be a safer form of payment and, if I lose my phone, no harm done, just get another one and reload it with all the apps and services from my carrier. Seems a lot easier than carrying a wallet or cash everywhere we shop or eat!

Matt Schmitt
Guest

There are big forces competing for the “de-facto” standard for mobile payment adoption by consumers, and the hurdles are multifaceted. We’ll likely see slower traction of the adoption than many predict.

It seems like PayPal has been somewhat hobbled as far as their potential goes. Ever since they were acquired by eBay, you have to wonder whether or not their potential in the market might have been brighter as a standalone company.

Ed Rosenbaum
BrainTrust

This can fast become the next big hurdle to overcome. I am sure Visa, MC and AmEx will not be happy and allow PayPal to simply take over. They will get in the race and make it both interesting and competitive.

Not only is this going to become an issue and asset at the front end of the stores, you can bet it will start to be influential in how these large chains pay their vendor network. I already have a client looking to pay us either through a credit card or PayPal (doubtful). So I am watching this with strong interest.

W. Frank Dell II
BrainTrust

For years we’ve looked at payment methods by type. First there was cash. This was followed by checks and then credit cards became the primary paying method. Debit cards have been heavily promoted due to lower bank risk and transaction fees. Older consumers favor cash, check and credit cards. Younger consumers favor debit cards. PayPal represents a cross section of consumers both young and old. As a general payment method it provides a good match for select retailers. I predict we will see more segmented payment methods.

Ed Dunn
Guest
5 years 5 months ago

PayPal already possesses years of solid shopping intelligence from eBay, so they have the data and algorithms to share with retailers.

As someone else noted, the mobile payment industry is too sidetracked on NFC technology while PayPal is focused on their proven workflow and multi-factor authentication.

Cathy Hotka
BrainTrust

Retailers will readily accept any new payment option that allows them to sidestep still-high exchange rates. And given the fact that they’re not receiving personal offers now, customers will probably give the privacy questions a pass.

Liz Crawford
BrainTrust

LOVE IT! This move ushers in the era of real seamlessness between clicks and bricks! An interesting implication of this is that earned scrip (miles, credits, points, bitcoins) can be used to pay for goods, in a true frictionless ecosystem.

Ben Sprecher
Guest
Ben Sprecher
5 years 5 months ago
This is a critical moment in the transition to the mobile digital wallet, because payment is fundamentally a network business; that is, both the consumer and the retailer (not to mention the payment provider) get more value from the service as more parties participate. Of course, that network effect also serves as a major hurdle to getting started. As a retailer, why should I go through the effort of accepting a new payment method until many of my customers use it? As a consumer, why should I set up and use a new payment method on my phone if few retailers accept it? To break through, the mobile wallet companies will need to create value for each party *before* the full network is there, or they will never get off the ground. For retailers, that means offering wrap-around services and insights that they can’t (or don’t) get today. For consumers, that means offering relevant content or some other incentives (such as rewards or cash back) beyond the “cool factor” that will wear off after the second time you pay with your phone. These announcements are a great start for PayPal. The terminal network partnerships in particular will dramatically shorten the… Read more »
James Tenser
BrainTrust

There’s little doubt that mobile payments and coupons are on the fast-track. Google, eBay (PayPal’s owner), Intuit, Verifone, ISIS (consortium of mobile phone carriers), and the major credit card companies are all in the race. Don’t forget upstarts like Square. The momentum is irresistible — with or without NFC.

In general, we should be wary of any new business that promises the aggregation and ownership of shopper transaction data as essential to future monetization. This has been an unfulfilled fantasy of the credit card companies for decades. I remain a skeptic.

Retailers may hope intense competition will result in continued downward pressure on exchange fees. Consumers may hope the choices are convenient and universal and that they deliver relevant value. Some fresh thinking is needed on this front: Even targeted coupons are a blunt instrument when it comes to lasting changes in consumer habits.

Mobile could lead to a commodification of our payments system, where transaction costs drop to nearly zero. Or the powerful forces behind our credit card system may succeed in preserving the fee structure status quo. It’s shaping up to be a spectacular confrontation.

Jason Goldberg
BrainTrust
The jury is out on PayPal in-store. Shoppers clearly like alternative payment methods; adding PayPal to a an online checkout process almost always drives additional conversions. With more and more people using PayPal as a currency alternative (parents paying allowances via PayPal, etc.), there is clearly a segment of shoppers who would like to use it in-store. Making it more generally accepted (such as the 15 new retailers) will accelerate that demand, and BillMeLater could be a powerful new financing option to save the sale for some physical retailers. The challenge is that PayPal’s pilot of its cloud-based wallet at Home Depot was a poor shopping experience. You’re essentially logging into your personal account via the POS terminal, and good luck doing your typical password recovery, remembering which phone number you used, pre-enabling your account for in-store purchases, etc. And if you want to try signing up for PayPal in-store, forget it. Not only are people who try the experience unlikely to try it again, but those in line behind someone trying use PaylPal at Home Depot will never try it. PayPal has to make the checkout process fast and easy, and they have to do it immediately. Once one… Read more »
Martin Mehalchin
BrainTrust

There is enormous potential value here for both retailers and consumers: better understanding of consumers and purchase behavior on the one hand and more targeted and relevant offers in return. The big barrier is broad consumer adoption for mobile payments to catch on they must overcome consumer concerns around privacy and security and then tackle the inertia behind a credit card system that works “well enough” for most people.

Robert DiPietro
BrainTrust

It’s great for the retailer if they can reduce the transaction fee. Consumer adoption could be tepid if they don’t provide the same level of security and protection as other payment methods.

Carlos Arambula
BrainTrust

It’s a project at a grand scale, but still a project.

Logistics and security aside — two areas that can be addressed — it’s a logical step in the simplification of life and integration of technology to quotidian life. However, at this and near future stage it will be a niche function, an addition to the credit and debit cards consumers have in their portfolio of financial products.

I still hear the customers’ laments when their Discover card is not an option to finalize a transaction, and I would expect the same issues with PayPal. I do think certain category of retailers would benefit tremendously from PayPal — again a niche function — and I expect it to become the norm with retailers strongly associated with a lifestyle.

Craig Sundstrom
Guest

“The funds will be taken directly out of their PayPal accounts, as with a debit card.”

Count me among those who don’t see this as all that exciting.

Ralph Jacobson
BrainTrust

With the current structure of the mobile payments in question here, I don’t believe there are enough compelling reasons to attract new customers to this type of payment. Those who are already users of the service may find it convenient, however, fraud protection may be in question.

There are some positives for the retailers, like reduced fees, however, will the data be available for deep analysis? Then again, not many retailers capitalize on the data they currently have available, so this point may actually be moot.

Christopher Krywulak
Guest
Christopher Krywulak
5 years 5 months ago

PayPal and other mobile wallets could offer interesting loyalty scenarios for retailers; aggregation of loyalty programs. Consumers don’t want to install a separate app for each retailer they buy from, but they do like the idea of rewards and coupons. A single payment application can track purchases and partner with the retailers on loyalty to offer a convenient and central “payment/loyalty” app.

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