PayPal Teams with Discover to Expand Offline Presence
PayPal is expanding its brick-and-mortar payment services to more than 7 million stores across the U.S. in a partnership with Discover Financial Services.
Under the deal announced on Wednesday, PayPal will issue cards next year to its more than 50 million active users in the U.S. Users will be able to pay at retailers in the Discover Network by swiping their cards through existing checkout machines and entering a four-digit personal identification number. Later, consumers will also have the option of paying by entering their mobile phone number and PIN at the terminal.
The arrangement provides PayPal access to a network that reaches about the same number of U.S. merchants as Visa Inc. and MasterCard Inc. The deal "will help shape the emerging payments landscape by bringing together an established direct-banking and payments company with a leading commerce enabler to create an alternative payments option for consumers at the point of sale," Diane Offereins, president of payment services at Discover, said in the statement.
PayPal, which is owned by eBay, said the arrangement, starting in the second quarter of 2013, is an extension of its strategy that is already deployed at nearly 2,000 Home Depot stores and 15 other retailers.
"We’ll get consumers used to using PayPal everywhere they want to shop," added Don Kingsborough, vice president of retail for PayPal, in a conference call on Wednesday. Mr. Kingsborough didn’t offer details on how much PayPal will charge merchants for the transactions, although Home Depot has said the relationship with PayPal lowers the "abusive" bank fees it pays for traditional credit-card transactions.
Scott Tilghman, an analyst at Caris & Co., said one of the key features of the partnership is giving consumers control over how they pay.
"Customers will retain the ability to fully manage their digital wallets, which means they will be able to determine the source of funding for their purchases," Mr. Tilghman wrote in a research note.
Some questioned whether consumers trust PayPal enough to be the brand they use for everyday purchases. Some also felt that PayPal still faces an uphill battle against the established credit card giants.
"Although the deal improves PayPal’s acceptance, PayPal still faces challenges in convincing its online customers to use PayPal offline in our view, especially given a lack of marginal benefit beyond convenience," wrote Bryan Keane, at Deutsche Bank Securities Inc., in a research note.
- PayPal and Discover To Bring PayPal To Millions Of In-Store Locations – Discover Financial Services
- PayPal Teams with Discover to Bring PayPal to Millions of In-Store Locations Across the U.S. Starting in 2013! – PayPal
- Discover to Accept PayPal Transactions in Stores – New York Times/Reuters
- PayPal, Discover Team Up on Mobile Payments – Wall Street Journal
- PayPal, Discover and the numbers that matter – CBS MarketWatch
- PayPal’s Deal With Discover Gives It Scale, But Will Consumers Come? – All Things Digital
Discussion Questions
To what degree will its new partnership with Discover Financial Services help PayPal gain entry to offline payment processing? What advantages does PayPal have in mobile payments? What questions should retailers be asking around the arrangement?
Woo hoo!! It’s happening! Seamless integration is underway. Now shoppers will be able to roll their points, miles and credits into a PayPal account digitally and then use that value to pay for goods at an old fashioned cash register. Will they come? You bet.
Great move for PayPal following on the heels of the Square/Starbucks deal. Both non-NFC approaches are gaining momentum, making it that much harder for the NFC crew (Google, Isis) to gain ground. Retailers need to be wary of PayPal’s association with eBay though. I can see a time when PayPal uses customer relationships to point consumers toward eBay.
That is giant step forward for PayPal to gain share in the payment space. The retailers want to ensure they keep the connection with the customer and by using that payment vehicle, give away future touchpoints.
Feels like the wild west of payment options these days!
I am in favor of non NFC solutions, so I applaud PayPal on this move. But let’s get rid of the card part.
Looks like an end run on Google wallet and Apple’s efforts on the smart phone wallet. Bear in mind that mobile payment is THE key to the third wave of retailing. That is, first wave, pre-early 1900s, ALL sales were personally mediated to the shopper by the proprietor or their representative. Second wave, self-service, unmediated sales leading to explosive growth and benefits, primarily deriving from supply chain efficiency (including manufacture.) The third wave is and will be digitally mediated sales resulting from the convergence of online, mobile and bricks (COMB) retailing.
The explosion of efficiency of shoppers on the sales floor WILL be driven by the digital wallet, backing into intelligent digitally mediated sales. NOTE: this will not depend on paying shoppers to buy, aka coupons and cut prices.
It appears that PayPal has leaped the wall between online and bricks. Surprises me, but makes perfect sense. Actually, my early bet would have been on Apple winning in this space — they’re hardly playing in it yet, Google either. Instead, a dark horse has leaped into the fray! I doubt PayPal will be the last dark horse in. I’m fully expecting Amazon to make this kind of move, but other than my own speculation, haven’t heard it mentioned.
Establishing the value of a payment scheme is directly in correlation to the scope of its acceptance network. By aligning with Discover, PayPal has taken a big step forward in broadening its acceptance network and therefore becomes a more relevant name in the North American payments game.
The next step for PayPal is to “discover” ways to encourage consumers to place funds in their PayPal accounts. Creating some form of ongoing incentive or loyalty program to encourage use of the service with create the momentum needed to get consumers on board and have them mentally associate PayPal with offline shopping.
I like the move.
Unlocking the right value equation for consumers and merchants will be critical to drive differentiation and scale. Simplicity is one angle, cost is another, but there will need to be more and these may be a little harder to create and sustain.
I’ve always been impressed with PayPal’s consumer advocacy. My online businesses sell via the three major cards and PayPal. Occasionally we have a customer disagreement that is communicated through their payment provider. PayPal’s dispute system is by far the clearest and fairest we have encountered. PayPal users are likely to associate this online service with the new mobile payment system and cards.
This is a terrific new development, which I predict will absolutely explode.
Establishing the value of a payment scheme is directly in correlation to the scope of its acceptance network.
By aligning with Discover, PayPal has taken a big step forward in broadening its acceptance network and therefore becomes a more relevant name in the North American payments game.
The next step for PayPal is “discover” ways to encourage consumers to place funds in their PayPal accounts. Creating some form of ongoing incentive or loyalty program to encourage use of the service with create the momentum needed to get consumers on board and have them mentally associate PayPal with offline shopping.