PayPal Sizes Up Its Audience for New Payments Tech

The biggest takeaway from a roundtable discussion PayPal hosted at its New York offices this week: Size matters.

There is no such thing as a one-size-fits-all product, according to members of PayPal's in-store payments team and executives representing point of sale terminal manufacturer Micros and PayPal-accepting merchants.

For smaller shops, PayPal and Micros are hoping a checkout system that displays the shopper's photo will resonate well, as these stores are more intimate and have customers who expect a higher level of service than they get at big-box retailers. Meanwhile, the QR-code and short code-based versions of the system under development are designed for bigger stores where the larger number of consumers shopping makes it less practical to use a photo-based system.

PayPal provided a demonstration of its Beacon device, which uses Bluetooth Low Energy to detect shoppers when they enter a store and let them check in on the PayPal app either automatically or when shown a prompt on their smartphones. Noting the relatively recent surge in BLE-based detection technology (including products from Apple, Shopkick and others), Don Kingsborough, vice president of retail services for PayPal, said he expects the geofencing technology to gain significant traction from the PayPal "partners and competitors" promoting this technology.

When PayPal and Discover began expanding in-store PayPal acceptance last year through merchants already connected to the Discover Network, the pairing opened the door for potentially millions of stores to begin accepting PayPal. However, at many of these stores, PayPal's functionality is limited to the PayPal plastic card. While merchants that direct connect with PayPal have the option of letting consumers pay by entering in a phone number and PIN, only about 25% of Discover-accepting merchants have PIN pads at their point of sale terminals.

Kingsborough acknowledged the reduced functionality for merchants connected via the Discover Network was not ideal, but said it was a short-term sacrifice to gain ubiquity. He added that the Beacon checkout technology will be available to all PayPal-accepting merchants, regardless of how they accept PayPal payments. The same will be true for the QR code and short code technologies under development.

Including retailers like The Home Depot, Jamba Juice and Toys R Us that connect directly with PayPal, as well as merchants connected through the Discover Network, PayPal says it now has the ability to reach 1.9 million store locations in the U.S.

To put that into perspective, Kingsborough told the roundtable that it took Visa approximately 15 years to reach acceptance in 2 million merchant locations.

Through a partnership with eBay Enterprise, the business-to-business division of PayPal's parent company, Walgreens offers a number of consumer-facing mobile features, including using technology from RedLaser (which eBay acquired in 2010) to let shoppers order prescription refills by scanning the bar code on their old pill bottles, as well as view store maps from the Walgreens mobile app. The eBay Enterprise business also supports fulfillment services like order processing and shipping for Walgreens' Drugstore.com subsidiary.

But while consumers can use PayPal to pay for purchases made on the Walgreens website, the drugstore chain has yet to implement in-store PayPal payments, said Rich Lesperance, a Walgreens e-commerce executive who oversees the merchant's loyalty program.

Walgreens has so far focused on in-store mobile experiences other than payments, like offering its Balance Rewards loyalty card on Apple's Passbook digital wallet. Walgreens' mobile app also presents digital coupons and weekly offers, as well as lets consumers order prints of photos stored on their devices.

The strategy is indicative of an overall measured approach to embracing new payments methods. For example, Walgreens is piloting Near Field Communication-based Google Wallet payments at stores in five markets. Lesperance said most Walgreens stores have payments terminals capable of accepting NFC payments, "but it's usually turned off."