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PayPal: Chains Get PINs, Small Fry Get The Good Stuff

Written by Frank Hayes and Evan Schuman
May 31st, 2012

PayPal’s strategy for its retail mobile payments program is clearly a two-tier approach. For large chains—the existing Home Depot rollout plus imminent deployments from JCPenney, Abercrombie & Fitch, Toys”R”Us, Foot Locker and Barnes & Noble, in addition to 10 others—the mobile services will be barebones, identical to the phone-number-and-PIN system that Home Depot is using. The more interesting PayPal mobile capabilities, such as displaying a headshot to confirm customer identity and alerting the store as soon as a registered customer walks in, are only being offered for much smaller retailers, typically one-location boutiques.

At one level, this makes perfect sense. It would be hugely disruptive for chains such as JCPenney to completely redo their POS environment to accommodate the new PayPal approach, which has heavily borrowed from Square, which itself has Visa as a very small minority investor (new data suggests Visa’s ownership is close to 2 percent). But small shops can much more easily replace their POS system with a tablet or whatever their mobile company provides and let PayPal functionality go as far as they want to take it.

On the other hand, this is a wee bit jarring, to see boutique shops—which until recently were being dragged to move from paper ledgers to QuickBooks or from electronic cash registers to POS systems—offering shoppers much more sophisticated mobile payments systems than Abercrombie & Fitch and Footlocker.

PayPal’s very public strategy—to try and get as much in-store acceptance of its payments system as quickly as possible—is clear. But what is more interesting is its tactic, a very aggressive and personal handholding approach that is unlikely to be sustainable. For the initial retailers, though, it was a welcome change of pace.

Gary Merry, executive VP for stores and IT at Joseph A. Bank Clothiers, said he is happy with PayPal’s help. “We’ve done these integrations before, I don’t want to say with who, and it was really a challenge,” whereas with PayPal, “they did whatever it took to get the job done.”

Verifone, which is also partnering with PayPal, has been working with its customers (who constitute the majority of the major chains involved) on integrating PayPal. “PayPal has been on every single technical status call” with all of its customers, said Paul Rasori, Verifone’s senior VP of global marketing.

Thus far, PayPal seems to have played this one almost perfectly. Not only has it gotten into an impressive list of Who’s Who among the largest retail chains—plus quite a few smaller merchants, courtesy of multiple POS and mobile services vendor deals on the low end—but it has taken the opportunity to make nice with the large chains.

That’s crucial, because this is only the very beginning. Getting into JCPenney and Home Depot is great, but two huge hurdles are next. First, getting customers to participate, which has yet to happen meaningfully with Home Depot. Second, getting many of the large chains to start using higher end mobile capabilities from PayPal. If no one moves beyond phone number and PIN, it could deliver to PayPal a small boost in transactions, likely grabbed from Visa, MasterCard and American Express.

The big payoff, though, requires the use of something approaching a full digital wallet, a vision PayPal rolled out last November. At the time, its vision of a mobile wallet was strikingly similar to what Google Wallet had announced months earlier. Both plans also closely resemble ISIS’s announced goals.

But the two most prominent NFC trials—from Google and ISIS—have disappointed and not lived up to the hype. More critically, some are now starting to seriously question how viable NFC trials are. Given that PayPal is not relying on NFC, its barebones approach is open to any mobile phone.


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