Evan Schuman's StorefrontBacktalk

Many have been awaiting Apple’s decision on whether it will support NFC in its next iPhones and iPads. Some, though, have been pushing iPhones to use the high-end functionality without NFC. Jason Richelson, CEO of POS vendor ShopKeep (another PayPal partner), said that he has given up waiting for Apple. “I just don’t see Apple getting into payments,” Richelson said, adding that the check-in functionality of PayPal can be accomplished on iPhones by leveraging geolocation. He has also found ways to use the iPhone’s camera to communicate with the iPads his retailers use as a POS system.

The biggest weapon that PayPal has, of course, is its huge installed base of 110 million active accounts. Warren Kornblum, the chief strategic officer at Rooms To Go (another of the chains PayPal announced), said that he wasn’t expecting any customer who wasn’t already a PayPal user to try the system in his stores.

ShopKeep’s Richelson echoed that comment. “I thought it would be hard to get our (retailers’) customers to set up PayPal accounts, but it turns out that they already had them,” he said. “PayPal has been awakened by Square and others out there who have been trying to get into payments. This multi-tier approach is the right approach for them.”

This is all well and good for PayPal, but what are the benefits for retailers? There have been a lot of subsidies going around, with PayPal covering the costs of Home Depot and its partners and PayPal seeing to it that the major chains have little to no out-of-pocket costs associated with these trials. That makes the trial hard to say “no” to.

But that’s temporary. For this to work, retailers need to either see increased basket size from the mobile programs or see that it’s luring customers from rival chains that don’t offer the mobile functionality. It’s hard to see how the entry-level phone-number-and-PIN trials will do that. Only the full mobile wallet packages—with integrated CRM programs, customized discounts, accelerated shopping, ability to switch payments from card to card, check-in points, etc.—would seem to be able to do anything lasting. Hence, the major chains must either upgrade or this simply won’t work.

That said, once in place, there’s little incentive for a chain to remove it. If it’s not upgraded, though, the result may be similar.

With the small merchants, the functionality enables a customer to alert a store before she arrives and to receive customized promotions. Rather than a customer acquisition program, some have described it as a retention tool, because customers who use it and like it tend to want to keep using it. Bingo: an IT reason to keep shopping at that same store.

There is also a security concern. Some in the PayPal community have argued that the smaller amount of data requested by the PayPal low-end mobile trials makes it safer, because a data breach would capture less useful information.

The bigger security issue, though, is that the system only requires two pieces of information to complete a purchase: phone number and 4-digit PIN. Mobile phone numbers are often widely shared today, so that piece is rarely a secret.

The key, then, is the 4-digit PIN, which could easily be seen by someone watching over a customer’s shoulder. If it’s learned, there’s no physical item needed. Thefts could happen, and the thief would be long gone before a customer would even learn of the theft. And if that PayPal account is tied into a bank account—like any debit card, it doesn’t enjoy the protection of zero-liability programs—customers could have to engage in a huge amount of unpleasantness.