PayPal Seeks to Cut Out Card Companies with New Plastic

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PayPal Inc. is about to introduce a new plastic card that's something of a Trojan horse.

Although it looks like a familiar payment card, its magnetic stripe stores encrypted data that lets consumers access a variety of accounts through PayPal. The card will not carry the customer's name or an account number but only the PayPal logo.

"It is another step in PayPal's march to disintermediate" the traditional card companies, says Andy Schmidt, research director for commercial banking and payments at TowerGroup.

The PayPal card is an extension of wallet functions PayPal has had for a decade or more, experts say. For example, PayPal has had a MasterCard Inc.-branded credit and debit card for years.

PayPal, which did not make anyone available to talk about the card, spoke about the new product at its X.commerce Innovate Conference in San Francisco this month.

X.commerce (named for X.com, an earlier online bank incarnation of PayPal) is PayPal's open commerce platform for developers.

PayPal plans to offer the card by the second quarter of 2012. When used at the point of sale, it allows consumers to choose which linked account they want to fund the transaction. The card itself uses a process called tokenization to reference account details through a secure code instead of a regular account number.

Its new card comes at a time when the payment industry is evaluating new payment forms, such as mobile wallets. Though PayPal is also building a mobile wallet for Google Inc. Android smartphones, its new card shows that it is not committed to a single format for mobile transactions, says Zilvinas Bareisis, a senior analyst for Celent.

The PayPal card can be viewed as a wallet that stores its transaction data and security information in the cloud, rather than in a phone's chip.

"PayPal is trying to leverage relationships they already have as the first large online presence for merchants to get merchants to accept PayPal in the physical world," Bareisis says.

There are challenges, however. While the PayPal card would not require merchants to buy new terminals (whereas many mobile wallet programs would), the 11.5 million terminals in the U.S. would still require software upgrades, says Rick Oglesby, a senior analyst for Aite Group. "It would be a fairly long sales and installation process where you would need to convince the merchants to take this on," Oglesby says.

PayPal and its parent company, eBay Inc., have made a string of acquisitions in the past year that boost both companies' mobile presences as well as PayPal's ability to transact at the point of sale. In July PayPal bought Fig Card Corp., which has technology for making mobile payments at the point of sale. In August, PayPal also bought Zong, which lets customers pay for items using their cell phone account numbers.

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Comments (2)
Both John Donahoe and Scott Thompson are simply delusional if they think that PayPal can continue to underpin the faltering eBay "house of cards" by becoming even a minor threat to the existing banks/Visa/MasterCard payments systems at traditional Point-of-Sale--the idea is pure science fiction. (Beam me up Scotty!)

The real question is, when are the world's various "banking" regulators going to finally do something about over-sighting this unethical, unprofessional, unregulated and clunky financial operator that not only acts like a bank--an unlicensed bank--but is in reality an unethical money gouging arm of the Ho's "eBafia"?

Even though PayPal clearly offers banking-type services (ie, holding users' funds in non-prudentially regulated and non-FDIC insured banking-type accounts), PayPal is mostly registered in some places not as a bank nor as a provider of credit but only as a "money transmitter" (like Western Union), and indeed PayPal itself has claimed that they "are not a payment network", and there is a grain of truth in that claim because most (but not all) of their activities facilitate the transmission of funds simply by riding on the back of the banks' existing payments processing systems.

In fact, the only thing creative about PreyPal has been their founding use of users' unique email addresses as identifiers for online payment transactions. PreyPal is otherwise no more than a blood-sucking parasite riding on the back of, and in the main cannot function except via, Visa/MasterCard and the banks' existing payments processing systems.

Regardless, outside of PreyPal's mandated use on whatever will ultimately be left of the Donahoe-stagnated eBay Marketplace, PreyPal (and most other third-party payments processors) will eventually be consigned to the history books by the retail banks/Visa/Mastercard once those players get their "online" act together. There is nothing surer than the sun will rise in the morning.

Both eBay and its ugly daughter PreyPal are most unethical, unprofessional organisations: they have both become the most despised commercial entities on the planet--apparently, even more hated than "the banks". eBay, amongst many other things, has forever knowingly and criminally, facilitated shill bidding fraud on eBay's trusting auction buyers. And what else can be said about PreyPal that many PreyPal merchants do not already know? Repeat: It's a most "clunky," unprofessional operation.

Having said that, it's possible that PreyPal can survive by becoming the merchant account provider "of last resort" for those very small or unscrupulous merchants unable to get a real merchant account from their own bank--Oh, hang on, hasn't PreyPal always been just that, and charged all their users accordingly?

eBay, a Knowing Criminal Facilitator of Auction Shill Bidding Fraud: Case Study #4:
http://forums.auctionbytes.com/vbulletin/showthread.php?t=23540

PayPal Claims that PayPal Is Not a Payments Processor!
http://forums.auctionbytes.com/vbulletin/showthread.php?t=24148

And, from along the way, a compilation of (mostly inane) quotes from eBay executives:
http://forums.auctionbytes.com/vbulletin/showthread.php?t=24159

Enron / WorldCom / eBay / PayPal / Donahoe: Dead Men Walking.
Posted by PhilipCohen | Tuesday, October 18 2011 at 5:45PM ET
Glad to see a company putting plastic cards to use. With all the new advances in NFC it looked and still does that the days of plastic cards are numbered.
Posted by Glenn K | Wednesday, October 19 2011 at 5:12PM ET
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