PayPal, Google and Isis' Common Mobile-Wallet Thread: Discover

As a new partner for PayPal, an early partner for Isis and the first issuer to sign on to a new method of participating with Google Wallet, Discover Financial Services is establishing itself as a foundation for mobile payments initiatives.

PayPal announced today that it will rely on Discover's network for its digital wallet's point of sale payments next year. This news, combined with Discover's separate pacts with Google and Isis, demonstrates both Discover's eagerness to be a part of these initiatives and its reluctance to commit to any one method.

"Our role is really to offer the widest range of options to our cardholder base and make it as easy as possible for them to adapt the method of their choosing," says Alisa Ellis, senior business leader for emerging payments and mobile initiatives at Discover.

Only a few card networks "are connected to large-scale amounts of merchants," says Don Kingsborough, PayPal's vice president of retail and prepaid products. "Some of these companies feel uniquely positioned to do [mobile payments] on their own and others — in this particular case, Discover — felt [working with PayPal] was a really strong alternative to that."

Discover is also the second issuer to fully endorse Google's mobile wallet. Google Wallet, like Isis, is designed to allow consumers to transact at the point of sale using a smartphone with an embedded near-field communication chip for contactless payments. Both systems use a mobile app to allow consumers to enroll and select different issuers' cards.

These systems compete with non-NFC mobile wallets, such as PayPal's, which allows consumers to make payments by providing merchants with their phone number — no special hardware required.

Discover's involvement with Google, announced last week, was facilitated by a change Google made this month to ease the process of working with card issuers. The move led Discover to become the wallet's second issuer partner; it joins Citigroup, which has a very different type of relationship with Google. 

Citi, as a launch partner for Google Wallet, has what Google calls a directly-enabled relationship, whereas Discover has a linked relationship. This means Discover's card is "linked" to a virtual MasterCard for Google Wallet transactions — Google does not present a Discover account to the merchant at the point of sale. 

"The advantage of a linked account is that it is very easy for consumers to set up in their wallet," says Gil Luria, managing director at Wedbush Securities.

"The alternative indeed creates a deeper relationship and leaves the issuer with more control, but creates more friction for the consumer, which is a very big setback," he says. "Unless there is some middle ground, I believe most issuers will choose the linked path to reduce consumer friction."

Ellis says Discover chose this approach with Google for its simplicity.

"Once [Google had] gone through the direct integration route with Citi and they saw the amount of time and effort it took to integrate issuers, part of their decision was to create this environment where … they could allow consumers broad choice in a much faster time," says Ellis.

Prior to Discover's participation, Citi was the only issuer partner Google announced since the mobile wallet's launch last year.

Discover Network, the DFS payments arm, was a launch participant in the Isis wallet, which was announced in 2010. Isis is a venture of AT&T Inc., T-Mobile USA and Verizon Wireless. Though Isis is still in testing, it has signed more issuer partners than Google has so far. 

"Any wallet platform and NFC-based type of payment vehicle opens up quite a few opportunities for all the parties involved, from merchants to the handset manufacturers to the software providers and obviously to the issuer network," says Sanjay Gosalia, Discover's director of mobile.

Sean Sposito contributed reporting to this article.