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Emerging Payments

PayPal's Mobile Wallet Enables Users To Change Their Minds

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PayPal Inc., a pioneer in alternative online payments, is seeking to stake a new claim in the burgeoning and increasingly congested mobile-payments space, and what sets it apart may be an acquisition that occurred three years ago.

Many mobile-wallet vendors boast of enabling users to choose any form of payment before making a purchase. In contrast, PayPal enables users to decide on their payment method up to five days after a purchase.

It does so via Bill Me Later, an instant-credit provider that once was one of a handful of genuine threats to PayPal's online-payment dominance. PayPal bought Bill Me Later in 2008 after the acquirer failed to attract a significant audience with Pay Later, its homegrown instant-credit system (see story).

Bill Me Later provides credit for individual purchases by performing risk analysis during the checkout process, based on little more information than what a customer regularly provides to merchants. By weaving this technology into a mobile wallet, PayPal can issue customer credit and provide a five-day float for each purchase. The customer can change the funding option for each transaction within that timeframe.

"We're very good with transactional credit and effectively providing a float to people," says Laura Chambers, senior director of customer experience for PayPal, a San Jose, Calif.-based unit of eBay Inc.

The float feature is one of many inside PayPal's digital wallet fueled by acquisitions.

Over the next two years, PayPal plans build a mobile point-of-sale payment system based on technology it acquired through its acquisitions of Milo, Redlaser and Where.com, Chambers says. Together, these companies enable consumers to get detailed information about products they would like to buy and the location of merchants carrying them.

Merchants, in turn, can advertise to PayPal customers, based on geo-location technology.

To entice brick-and-mortar retailers, PayPal is hosting a three-month Shopping Showcase in New York to show off ways in which each feature can boost sales.

In sleek, detailed window displays created by famed Barneys New York Inc. designer Simon Doonan, PayPal is illustrating its plans to tackle mobile payments with technology that is platform-agnostic and highly flexible. That includes the ability to accept Near Field Communication chips and any other technology consumers favor over cash or plastic.

"Realistically, NFC won't scale for three to five more years," Chambers says. "What we're doing is building a platform so that [we can compete] … no matter what the technology."

The showcase, which demonstrated some technology already on display during PayPal's September X.commerce Innovate Conference in San Francisco, includes a series of five interactive vignettes beginning in the shopper's living room. As shoppers query mobile devices for wish-list items from home, PayPal's digital wallet locates those products at nearby retailers, and as they make their way to the store it helps them pay for items such as lattes.

The experience culminates in the purchase of a wish-list item—a gas grill obtained at a local hardware store. The wallet completes the purchase using loyalty reward points, coupon offers, and cash from a savings, checking or credit account.

PayPal's newest magnetic stripe card, unveiled last month, appears to be designed to kick-start acceptance of PayPal's digital wallet before all these features are in place (see story). 

The card carries only encrypted user information. Customers can access their wallets at the point of sale by swiping and entering personal identification numbers. The card is not even necessary for this process; consumers also may access their wallet using just a phone number and PIN.

The mag-stripe card is important because it enables merchants to use their existing terminals, Chambers says.

It would indeed be easy to upgrade terminals to accept the PayPal wallet, analysts say. Vendors simply have to push new lines of code to enable the switch.

What will be more challenging is convincing merchants that they need to use the PayPal wallet in the first place and then coordinating upgrades of the nearly 12 million terminals in the U.S., they say.

That is why PayPal is focusing initially on large national merchants, Chambers says. Some are scheduled to begin pilots early next year.

"We're starting with the big guys, and though we are not naming anyone now, they are all national brands," Chambers says.

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