CHICAGO — Investors and payment-industry participants declared the recent partnership between Discover Financial Services and PayPal Inc. a game-changer in payments. But will consumers agree?
If consumers don’t have that same enthusiasm, the hoopla over an online payments provider using a card brand’s network for payment acceptance would quickly fade, says Beth Horowitz, senior vice president of marketing and merchant relations for Discover.
The value proposition for consumers must evolve over time, Horowitz said during her presentation here this week at the 5th Mobile Contactless Payment Innovations Summit.
“A lot of smart people have to work hard to get to that answer [about value],” Horowitz said.
PayPal's point of sale payment system is designed to be consumer-friendly. Though it allows consumers to access their PayPal balances with a plastic card, the card isn't actually required — a simple phone number and PIN are all a merchant needs. PayPal signed up over a dozen merchants on its own to accept this new payment system, and its deal with Discover is meant to expand acceptance dramatically.
Though these moves alleviate confusion for consumers over where and how PayPal's digital wallet is used, the Discover partnership has to provide something of value for all parties involved in the payments food chain, Horowitz added.
Vantiv and Global Payments have announced support of the partnership, illustrating that payment processors view Discover network accepting PayPal payments in 2013 as a positive development for the industry, Horowitz said.
Discover has established itself as a willing partner to serve as a foundation for various mobile payment initiatives.
As such, the card brand has gone through a “readiness cycle” with various recent agreements, though preparedness may be slightly different with PayPal, Horowitz said.
“In this case, we will do it in a way that is ‘PayPal right’ because we’re simply the back end, the enabler or facilitator in this arrangement,” she adds.
PayPal has operated as an issuer and acquirer for Discover for more than 10 years, Horowitz said.
Essentially, Discover is illustrating what networks need to do heading into the ever-changing payments industry of the future, Horowitz said.
“In the past, payments were authorized, settled and cleared on the networks, and [networks] really hadn’t transformed it much further than that,” she said. “Now, payment is the most minor facet, as services have to be provided before and after the sale.”
Networks have to help merchants and issuers “scale the entire nature of a transaction” and connect all of the data in the process, Horowitz said.
Even though industry observers questioned whether the agreement with PayPal would hurt Discover’s Pulse PIN-debit network, the company responded in saying a second phase of the agreement may include enhancement of PayPal’s PIN capabilities.
“Consumers need many different types of accounts and we want to enable all of those account types,” Horowitz said.
In echoing that sentiment during Discover’s earnings conference call last week, Discover CEO David Nelms made it clear his company intends to be “the most flexible partner for a number of other players” heading into 2013.