PayPal has unveiled PayPal Beacon, a plug-in device for merchants that will detect when shoppers running PayPal's mobile app enter a store.

Merchants running point of sale systems compatible with PayPal can use Beacon, including Booker, Erply, Leaf, Leapset, Micros, NCR, PayPal Here, Revel, ShopKeep, TouchBistro and Vend, says David Marcus, PayPal's president, in a Sept.9 blog post. The technology uses Bluetooth Low Energy, or BLE, to detect shoppers.

The eBay subsidiary plans to support more point of sale systems soon, Marcus says.

Consumers use Beacon by choosing which stores they want to automatically check into with the PayPal app. For those stores, shoppers can execute "hands free" payments — they do not even need to pull out their phone. At those stores, the consumer's phone will make a sound or vibrate to confirm a successful check-in. The retailer sees the consumer's photo on the point of sale screen, enabling the clerk to address the consumer by name. Consumers authorize the payment verbally.

"This technology is our most significant contribution to date in reinventing the in-store shopping experience. Beacon is a new add-on technology for merchants that will enable consumers to pay at their favorite stores completely hands-free," Marcus says in his blog post.

The moves come as PayPal is actively looking to expand its presence in retail stores, a strategy that includes a free-processing promotion for merchants that use a Beacon-compatible point of sale system.

"The real big win for PayPal is the automatic check in. PayPal knows you are in the store and they are using this to render personalized payment," says Richard Crone, a payments consultant.

The technology allows PayPal to combine the check in with offers and marketing in real time, giving it another competitive advantage over banks, Crone says. "PayPal can say 'this customer is six feet from your product right now,'" he says.

PayPal is also giving developers access to the PayPal mobile in-store application programming interface (API) to allow self-checkout on a mobile phone or automatically place a customer's usual order as soon as they walk through the door. "I believe we're opening the door to a fundamentally different way to use technology to make shopping richer and more valuable for consumers and merchants alike," Marcus said in his blog.

The hands-free function is rare in payments, says Arkady Fridman, a senior analyst at Aite Group.

While "it's a step in the right direction" for payments technology, he says, it poses challenges since consumers may be inconsistent in how they use Beacon—which also requires up-front registration work from the consumer.

"It's a great move, but the customer experience may vary between stores consumers frequent a lot and other stores," Fridman says.

PayPal Beacon uses a version of Bluetooth to detect shoppers running its app, but other vendors offer similar systems by relying on ultrasonic signals picked up by the smartphone's microphone.

For example, the mobile shopping and rewards company shopkick has an app that can pick up a signal given off by a nightlight-sized device plugged in at a store's entrance. It can also detect a signal sent through the store's music system. The terminal maker VeriFone uses  sound waves as part of its Way2Ride taxi fare app. 

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