PayPal's Latest Tech Deals Show a New Approach Built on Braintree

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PayPal's freshly announced support of in-app payments for Uber and McDonald's illustrate that the eBay unit is fast adapting to a world that demands more of its payments technology vendors.

"Any criticism that PayPal has been slow has changed. [PayPal President] David Marcus has clearly done a lot of work to move the company forward" since taking the top job last year, says Nick Holland, a senior payments analyst at Javelin Strategy & Research.

The deal with the car-service company Uber is particularly noteworthy, since startups like Uber have lately looked to younger companies for their payments needs — Uber was a significant client of Braintree, which PayPal is in the process of acquiring.

After eBay announced the $800 million acquisition in September, eBay CEO John Donahoe spoke frankly about how PayPal's technology compared: "When we finally looked at it side by side, we decided we were better off taking Braintree's [technology] and merging ours into it," Donahoe said during an Oct. 16 earnings call.

At the same time, PayPal's also supporting in-app payments at McDonald's in France, where consumers can place their order on the McDonald's corporate website, the individual restaurant's website or through a mobile app. When picking up food, McDonald's customers type in a PIN or scan a code at the point of sale. This arrangement is the result of yearlong testing between the two companies, PayPal says.

The Uber deal is significant because it is the first company to use PayPal's new software development kit, says Stan Chudnovsky, PayPal's vice president of growth, in a blog post. PayPal plans to make the SDK generally available early next year, he says.

"The new mobile SDK enables developers to make the payments experience seamless for their customers by eliminating redirects and not asking them to log in every time they want to make a payment with PayPal," he writes. PayPal would not make an executive available for a phone interview by deadline.

Uber's mobile booking application for car services will enable payments inside the mobile app via PayPal in the U.S., France, Germany, Italy and the Netherlands. Uber users can add a PayPal account as a payments option similar to adding a credit card. Car bookers aren't redirected to PayPal, but make the payment directly in the Uber app.

"This shows the development of PayPal into a cutting-edge platform for not just online transactions, but offline they are clearing pursuing a whole variety of new areas," Holland says.

PayPal's SDK should help PayPal build payment technology for not just Uber, but other e-commerce apps such as the rental portal Airbnb, PayPal's Marcus said when announcing the relationship with Uber. Airbnb is also a Braintree customer.

PayPal's pending acquisition of Braintree should enhance its ability to compete in a mobile technology market where much of the innovation has come from upstarts such as Square and Stripe.

"PayPal strengthens Braintree globally, and Braintree provides PayPal with new technology to support in-app payments plus provides PayPal with some fast growing global clients," says Rick Oglesby, a senior analyst at Aite Group. "Merchants everywhere are deploying their own mobile applications, and increasingly they want consumers to be able to buy things from within the app itself and/or complete an in-app purchase or in-store pickup."

The integration of PayPal and Braintree will strengthen PayPal's ability to support these types of payments and to increase both point of sale and mobile commerce businesses, Oglesby says. "The Braintree acquisition was made in-part to overcome the perceptions that PayPal's technology had become antiquated. This does not mean that this perception has been overcome, but it is a quick move in the right direction," Oglesby says.

More businesses are building mobile apps which focus on customer experience, whether it's hailing a cab or pre-ordering a meal, says Zil Bareisis, a senior analyst at Celent. "Embedding payments directly into these apps rather than forcing the customers to leave the app and go to an open wallet for payment further reduces friction and dropout rates and is more convenient for the customer."

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