PayPal’s New System Relies on Mobile Phone Technology
PayPal gave merchants and others a peak at the new payments technology that, it said, will allow it to overcome the dominance of Visa and MasterCard at the point of sale.
“There’s a new normal in retail,” wrote PayPal CEO Scott Thompson in a blog entry on the new technology. “Shopping is 24/7, and it happens everywhere–not just in a store or website. The intersection of smartphones, social media, online and offline shopping has put the consumer squarely in control.”
The new suite of payment services relies heavily on mobile phone technology and in many cases bypasses point of sale terminals, according to reports from media outlets, which were allowed to view the technology and a video the company produced.
Among the specific technologies displayed were an approach that will let a user enter a telephone number and a personal identification number and the amount will be charged to a bank account or card associated with the number. Another approach will allow the user to swipe a PayPal issued plastic card at the point of sale. The card will not have an account number nor carry a Visa or MasterCard logo but will require the use of a PIN.
Larger items will be purchased in a store by scanning the item's bar code, which will allow PayPal to find that exact item in stock with the retailer and allow the user to purchase it from the aisle and arrange for it so be shipped to a home address, according to media reports.
PayPal will also have the ability to provide credit for the item, allowing the user to purchase it and pay for it over a set number of payments.
The payments company expects merchants to like the new services because, unlike contactless payments or EMV payments, they do not require any change in payment hardware. In addition, relying on mobile phone technology will allow users to check in when they enter a store and receive targeted marketing or other sales support automatically.
Media outlets reported that Home Depot and Sports Authority were among the companies that had executives on hand for the peak, but the companies either did not return phone calls or declined to comment on the new technology.
Thompson was quoted speaking to merchants in a way that appeared to make PayPal a counterpoint to the major card brands, especially Visa.
“We are doing something so big that it will change the face of payments,” the Wall Street Journal's “All Things Digital” quoted Thompson as saying. “We can’t be so bold or arrogant to think that you’ll adopt to the standards we’ve created. If we said, ‘Throw away your terminals and get a new one, or buy a new phone’…no one has that level of influence and pull.”
PayPal declined to provide an executive to talk to Credit Union Times.
Visa announced an initiative in August that is designed to move the U.S. payments industry to EMV chip cards and EMV contactless payments by the middle of the decade, but the initiative will require large scale replacement of most existing point of sale payments terminals.
In an interview with the Wall Street Journal, Thompson made it clear that PayPal had been developing the new technologies with an eye toward merchant needs, particularly in helping off-line merchants gain more parity with online merchants in being able to know who their customers are and the ability to do more targeted and immediate marketing. Meeting those needs are what will help drive merchant acceptance of PayPal's approach more quickly than they adopt other approaches, Thompson said.
“If merchants see value, and integrate it and push it, consumers will use it. It will become a natural thing for you to use it in the grocery story or the pharmacy,” Thompson said. “You’ll be able to use it for everyday spending–that’s age-old logic. If the companies with the most foot traffic use it, it will be adopted.”
Thompson predicted that the firm would double it payment transaction volume by 2015, but no one knows what that might mean in terms of absolute transaction volume or on how much impact that might have on other, competing payment platforms like credit and debit cards.
It's difficult to know whether PayPal will meet those targets, but Dan Butler, vice president for merchandising and retail operations for the National Retail Federation, believes there will likely be an appeal, particularly for smaller merchants who feel like they have suffered under the payment card brands for years. He also noted that many merchants, particularly those with both an online and off-line presence, likely already know PayPal and are familiar with it.
PayPal has not revealed how it expects to make money from the service, and industry analysts are split about whether the company will opt for an interchange model, where it will charge a small amount up front and then take a small percentage of each transaction or whether it will charge flat fees based the numbers of transactions. Retailers with fewer transactions will pay lower fees.
Analysts said they thought it unlikely that retailers would ever stop taking cards in favor of PayPal transactions, but one who did not have permission to speak on the record, said she believed it would be easy for retailers to steer consumers toward choosing PayPal instead of one of the card brands.
She was also not surprised at PayPal's move into the space, noting that its acquisitions of other companies made it easier to predict its actions. For example, acquiring the company Bill Me Later gave PayPal the ability to offer consumers credit quickly, and acquiring the firm Milo allowed it to offer consumers the ability to see what a retailer has in stock at any given time. These services have been around for a while, she noted, but PayPal is the first to bring them all together in one service suite.