Next to The Container Store and across from a Bed, Bath & Beyond sits a building that Manhattan passersby would be unlikely to look at twice in a city that counts among its many sights Times Square, an (almost) naked singing cowboy, a man who wears a cat on his head, and a church converted into a shopping center.
Inside, however, there is much that would warrant a second glance, even from a jaded New Yorker. The third floor houses PayPal's Innovation Center, where it demos mobile app pilots designed to simplify shopping. The company, which dominates online payments, is one banks should watch as it aims to capture revenue from a growing commerce channel and includes banking services within its app.
The showroom, which opened in 2011 and looks like a mini-mall, is the equivalent of a Hollywood movie set in which visitors get a guided tour of emerging PayPal technology and watch mock-ups of how it could be — and in some cases is — used in real life. The Innovation Center is staged with props to show how people preorder and prepay for a smoothie through the PayPal mobile app, for example. Less intentionally, it illustrates one way a non-bank app could nibble away at a financial institution's branding, by winning consumer mindshare through an intuitive user experience.
This week, during a major retailer conference, the Innovation Center was put to good use demoing eBay and PayPal's latest initiatives — and therefore, what customers will come to expect in a financial services app.
The newest feature simplifies online checkout so shoppers can pay with PayPal without the need to leave the merchant's site.
This and other efforts to simplify shopping are driven by consumer demand, PayPal executives say, a sentiment echoed by bankers who say consumer preferences drive their mobile app design.
"Consumers are changing what technology is doing," says Don Kingsborough, vice president of global retail at PayPal and one of my tour guides. "[Innovations] are a reflection of what people are trying to do."
Along with its online checkout update, PayPal showed the latest version of its mobile app, which it updated in the fall.
The app, which can be linked to credit and debit cards, gift cards and savings accounts, comes with features that obviously vie with banks' services: account balance checks and, more important, person-to-person payments. Here PayPal competes with Fiserv, FIS, and bank-owned clearXchange. Unlike most banks' apps, PayPal's comes with the ability to pay for things with smartphones at some merchants, among other features that are pitched to consumers as saving them time and money.
To that end, the app displays nearby merchants that accept PayPal accounts front and center. Users who have uploaded their photos (for authentication purposes) can preorder and pay for their items at select local partners, a feature designed to inspire usage. My tour guides demonstrated the experience of pre-ordering a drink from Jamba Juice, one of its partners, through the app. Though my first pick — wheat grass — was not listed, my second choice, Razzmatazz, was. The tool is designed to circumvent a line in the store while applying a discount automatically to the payment. If I didn't want to pre-order, I could pay with a PIN and phone number if the merchant permits it -- some require a physical card for payment, among other methods. (This is the case with many of the stores that participate through PayPal's partnership with Discover Network.)
The app adds new dimensions to the idea of being "top of wallet." Users can set preferred payment methods for some types of transactions. If a person has not yet selected a preferred payment method, PayPal funds the transaction in this order: PayPal balance, instant transfer from a bank account if available, PayPal credit, debit card, credit card, or finally, electronic check.
PayPal claims 137 million active accounts globally but does not break down its mobile app user numbers.
The mobile wallet is meant to eventually work with other innovations coming to physical stores. Among this week's flurry of eBay-related announcements was one about merchant-funded offers, an area that banks have been working to modernize.
Indeed, eBay said it's growing out its in-store-offers pilot program that uses Bluetooth Low Energy (BLE) beacons. The merchant sets up at least one beacon wireless device in the store that communicates with a mobile app. This is used to check a person into the PayPal app either automatically or through a prompt on his smartphone. Current pilot programs are running at a few merchants in Australia and the U.S. and let consumers make so-called hands-free payments.
The experience would work something like this: A shopper walks down an aisle and gets pitched a discount for Crest toothpaste based on his shopping data and what a merchant wants to offer, Kingsborough says. The idea is to provide a digital experience to shopping in-store while collecting more data for companies to continue to upsell.