Can PayPal Win the Payment Solution War?

Discussion
May 01, 2013

Most of the recent news has been good for PayPal. Consider that Discover Financial Services announced yesterday that it has signed deals with 50 retailers, including Brookstone, Burger King, Nordstrom and Sephora, to offer PayPal’s in-store payment service in stores.

On the not so good news side of the ledger is that Walmart is still not accepting PayPal in its stores.

"We do not see the value proposition for brick and mortar merchants to accept PayPal in-store as it is an aggregation of tender types already accepted in-store at a higher cost and complexity to the merchant," Randy Hargrove, a spokesperson for Walmart, wrote in an e-mail to Reuters.

Walmart is working with other large retailers, including 7-Eleven, Bed Bath & Beyond, Best Buy, CVS, Darden Restaurants, Dick’s Sporting Goods, Gap, HMSHost, Hy-Vee, Lowe’s, Meijer, Publix, QuikTrip, Sears Holdings, Sheetz, Sunoco, Target and Wawa, on a mobile payment technology called Merchant Customer Exchange (MCX).

MCX will offer a variety of benefits, once it goes live, that current mobile payment systems do not, say the companies behind it. These include not only lower costs for merchants, but safeguards on transaction data between the retailer and consumers. And having this data will allow retailers to serve personalized offers directly to consumers’ mobile devices.

While Walmart is a holdout, there is a wildcard that could swing things PayPal’s way.

"Merchant acceptance (of PayPal) has largely been addressed," James Friedman, an analyst with Susquehanna Financial Group, told The Wall Street Journal. "Now consumer acceptance is the harder challenge. At the end of the day, if you solve consumer acceptance, merchant acceptance will follow."

What is your assessment of PayPal’s in-store payment opportunity? Do you expect MCX or another system will eventually dominate the mobile payment arena?

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10 Comments on "Can PayPal Win the Payment Solution War?"


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Steve Montgomery
Guest
9 years 25 days ago

The cost of credit for a retailer is simply too high. I don’t see PayPal as a solution to this issue.

MCX appears to have overcome any reluctance for competitor retailers to join as it includes Walmart and Target, and others such as Sheetz and Wawa. This bodes well for MCX, but it remains to be seen which of the competing mobile payments systems will win the hearts and wallets of the consumers.

Gene Detroyer
Guest
9 years 25 days ago

I can assure you of two things…

1.The dominant payment system does not exist today.
2.The dominant payment system will cost merchants pennies, not percents.

Nikki Baird
Guest
Nikki Baird
9 years 25 days ago

I like Gene’s notion — pennies, not percents. Where I run into trouble in understanding the current payments mess is how PayPal will navigate EMV. It’s fine to enter a phone number and a PIN now — that’s the convenient selling point to consumers at least. But how will that work when a chip is required? And for the retailer, how does this help them minimize transaction fees? I do agree with Walmart on that point.

Roger Saunders
Guest
9 years 25 days ago
Payment systems via online, offline, and mobile devices will likely have multiple players who will make a solid living off of how consumers choose to pay. Inevitably, 3 or 4 will emerge with 80%+ share of the space. A dominant, monopolistic position is unlikely. Similar patterns exist within the credit card arena, and other sections of the financial services industry. The winners will have stronger technology, offer a system that is easy for the consumer to understand, easy to work with, and easy to administer for consumer and merchant, alike. PayPal is smart to be in this game early on. They hold a solid brand name/awareness, and they should do well. We’re talking about the consumers’ money here, so keep in mind that MCX might not be a name that pulls the customer into the mix. Walmart’s clout will position their payment system as a strength. That doesn’t mean they have the path to dominance. As John Randolph’s character in Prizzi’s Honor, Angelo “Pop” Partanna, says to his son Charlie Partanna (Jack Nicholson), “Not even… Read more »
Matthew Keylock
Guest
Matthew Keylock
9 years 25 days ago

There’s a big difference between being the business or brand that fulfills payments and being the brand that consumers choose as their “wallet”.

While a wallet and payment mechanics need to connect well (as they do today), the technology, data and priorities of a payment business are very different from those of a customer science, insight and communications business that customers trust to create value for them.

I suspect the regulatory pressures will be different too.

Gordon Arnold
Guest
9 years 25 days ago

The Cost of Goods Sold (COGS) is on the move upward, while retail prices are sliding to reduce inventory and stabilize turn. The idea of signing on to a highly visible payment method of any means will both initially and in the future place additional unnecessary stress on dwindling profits.

Walmart and others have this figured out and are wisely moving to in-house source funding. As large, world-size corporations continue to grow, they will find it is easier to be the bank than to carry several institutions across the planet at a very high price.

Lee Kent
Guest
9 years 25 days ago

I’m going to go out on a limb here and say, I don’t really care if there is a dominate player. Do I care if I carry Visa or Mastercard? Nope. It’s all the same to me.

So the real winners here will be the ones that can make it all the same to the consumer and also give the retailer the service and rates they want.

PayPal has a good head start and a strong reputation. Now, if they can give the retailers what they want, they will remain in the game. But remember to remain competitive; a game has multiple players. Hmmm…

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
9 years 25 days ago

I never understood PayPal. It connects to your debit or credit card, so why not just use either of those two payment systems? Why give PayPal their “slice”?

Bill Hanifin
Guest
9 years 25 days ago

I fundamentally disagree with the opinions expressed by both the Walmart spokesperson and analyst cited by the WSJ.

PayPal is not necessarily “the aggregation of tender types already accepted in-store at a higher cost and complexity to the merchant,” as the Walmart person stated. It is just that it’s not the MCX proposed solution, which Walmart has chosen to align with. The analyst gives too much credit to merchant acceptance of PayPal as I think they have made progress but have a long way to go in terms of building out an acceptance footprint competitive with Visa, MC.

Lastly, it will be the customer that decides the winner. People have to recognize a solution that makes their lives easier and brings them added value. Not sure that PayPal does that yet, and the MCX solution is months away from market introduction.

Let’s wait and see.

Herb Sorensen, Ph.D.
Guest
9 years 25 days ago
I wouldn’t predict the winner, but am doubtful that PayPal will be it. However, this is clearly not a tangential issue, as I believe the dominant mobile wallet will play a larger role in the future of retail than has been widely recognized. In fact, I find these discussions frustratingly, narrowly focused, just because historically they were more or less independent pieces of the retail puzzle. I have been touting the Convergence of Online, Mobile and Bricks (COMB) retail for several years now, and slow as molasses, the industry is coming to recognize this growing reality, whether by that name or not. I will now articulate a parallel concept related to electronic payment: The meeting of the minds, delivery of goods, and electronic payment will become one seamless process for the dominant retailers of the future. Call it the “3M is one” principle. Mind, matter and money, integrated. This means that one party will NOT rule payment, another the delivery of the goods, and a third actually introduce buyer and seller, consummating the “sale.” There… Read more »
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