A Visa Inc. executive criticized PayPal Inc.'s mobile-payment system Wednesday, suggesting a service the online payment provider is testing at some Home Depot Inc. stores could open customers up to fraud.
The comments underscore the high stakes traditional credit-card companies are placing on digital payments, a market also being targeted by Google Inc., PayPal's parent eBay Inc. and Verizon Wireless. Visa is testing its own digital wallet service.
"I think there's real issues around security," Jim McCarthy, global head of product at Visa, said of PayPal's new service at a Goldman Sachs conference in San Francisco. McCarthy suggested someone could gain access to a customer's personal information when using PayPal to make a purchase in a physical retailer.
PayPal began testing a service in January that allows its customers to make purchases with their PayPal accounts in stores instead of swiping a card or handing over cash. The customer can facilitate a transaction by typing in their mobile phone number and a PIN into the merchant's terminal. The service is currently available in 51 Home Depot stores, and PayPal expects to expand it to 2,000 Home Depot stores next month, according to Anuj Nayar, a spokesman for PayPal.
Nayar didn't immediately have a comment on Visa's statements Wednesday night. A spokesman for Home Depot referred inquiries to PayPal.
McCarthy gave an example of someone watching a customer entering a mobile phone number and PIN to conduct a transaction, thereby gaining access to the customer's PayPal account. McCarthy also questioned whether PayPal has the technological infrastructure to handle a high volume of payments.
"We're now capable of doing 20,000 transactions a second in real time," McCarthy said, adding he doesn't think PayPal is "capable of doing what we're doing at scale."
Visa and competing credit-card networks MasterCard Inc., American Express Co. and Discover Financial Services face a slew of new competitors that are pushing or developing services that would allow consumers to use software-based programs to buy goods at brick-and-mortar merchants and online. While many of the services would allow customers to fund accounts with existing credit cards, they also risk diverting transaction volume away from the networks.
PayPal, primarily a service for paying for goods on desktop and mobile websites, allows customers to fund their accounts through existing bank accounts as well as cards from Visa, MasterCard, American Express and Discover. About half of transactions made with PayPal are funded with cards, according to analysts.
PayPal isn't likely to gain "significant payments volume" in physical merchants in the next couple of years, wrote Rod Bourgeois, an analyst with Sanford C. Bernstein & Co., in a research note published Monday. However, PayPal is likely to compete with traditional card companies by undercutting interchange fees.
"We see PayPal partly as a pawn that merchants can use to exert pressure on" Visa and MasterCard "and the interchange rates they control," Bourgeois wrote.
Visa and other card companies are developing their own mobile- and online-payment services.
Visa is preparing to roll out V.me, a service that would allow customers to pay for purchases on mobile and traditional websites by entering a username and password instead of typing in a card number for every transaction. The software would allow customers to fund purchases with their Visa-branded cards as well as those from other networks. Eventually, V.me could be used to make purchases with mobile phones at physical merchants using near-field communication technology, which would allow a customer to tap a smartphone against a contactless terminal to complete a transaction.
Visa Chief Executive Joe Saunders said last week the company will be testing the service with a "few brand-name merchants" in the coming weeks and is in discussions with more than 100 major merchants about further tests.
Visa has also said it will work with Google, which rolled out its mobile-payments service Google Wallet last year, as well as Isis, a competing service being developed by AT&T Inc., T-Mobile USA and Verizon Wireless. Currently, consumers can use some MasterCard-branded cards issued by Citigroup Inc. to fund Google Wallet.