Evan Schuman's StorefrontBacktalk

PayPal’s expansion of its in-store payments trial at Home Depot (up from 400 PayPal employees to all PayPal users) marks a huge jump in the trial’s scope—and risk. On January 19, PayPal opened up the trial to include 51 stores (up from the initial 5) and said all PayPal users could now sign up for the system. That should give both PayPal and Home Depot much more useful information on who will use the system, and how.

But PayPal’s approach—which essentially reverses 50 years of payment-card advances by eliminating any physical authentication device—still presents a big challenge when it comes to security.

The expanded trial, which adds stores in northern California and the Omaha, Neb., and Atlanta areas, came less than two weeks after PayPal announced that Home Depot was testing the system.

By the way, a much-quoted Reuters report from January 20 said that Office Depot is also currently in trial with PayPal’s system. It’s not, and the problem was tracked down to an Office Depot exec who was discussing that chain’s announced trial with Google Wallet and apparently accidentally said PayPal. It’s not clear if Office Depot is indeed in talks with PayPal about a possible trial. Given PayPal’s attempts to talk with a wide range of retailers, though, it’s certainly quite plausible.

The Reuters report quoted Kevin Peters, president of Office Depot’s North American unit, as saying that PayPal “at this point [is] in a small number of stores” and that is “because there are still some rough spots in that experience. There are some limitations on who can use it, service carriers that support that.”

The part about service carriers doesn’t seem to apply to a PayPal trial, but it does apply to Google Wallet. And the “rough spots in that experience” comment also is consistent with reports about Google Wallet initial efforts. A source within Office Depot confirmed that Peters was apparently discussing Google Wallet and not PayPal and that there is no current PayPal trial happening at Office Depot.

That Reuters report happened to publish the day after eBay CEO John Donahoe told an analyst call about trying the system himself at a Home Depot: “I left my wallet and my cell phone in my car,” he said. “Without my wallet, without my mobile phone, on the terminal, I pressed ‘Pay with PayPal.’ I put in my mobile phone number and a PIN and, boom, I was done. The receipt E-mailed to my E-mail account, texted to my mobile phone and I walked out. So it was a beautiful experience.”

“It’s going to be a learning year,” Donahoe added. “But for early trial in beta, it’s a great experience and, frankly, an experience no one else can match.”

Donahoe’s experience matches other reports about how the system works from users who aren’t PayPal or eBay employees. Ordinary PayPal users can now sign up online, which should give the trial a large influx of users to do testing (something currently missing from Google Wallet trials at some retailers).

The process is straightforward: An existing PayPal user just links a mobile phone number to the PayPal account and chooses a PIN, along with whether receipts will be sent via text message to the phone or only to the user’s PayPal account. At the POS in-store, the user works through a few prompts, keys in the phone number and PIN, and then completes the transaction. (PayPal also offers a conventional magstripe card, but it’s the numbers-only version that’s really being tested in the Home Depot trial.)

According to Russ Jones, the editor of the blog Payments News who tried the system himself, the transaction receipt is a full receipt—not just the final amount, but line-item information (albeit in Home Depot’s cryptic inventory shorthand) for each item purchased.

All that really does sound simple, and not that different from what customers are accustomed to. And that’s the most worrisome part of PayPal’s approach: It feels too familiar to customers, even though a major layer of security that protected them in the past is no longer there.