PayPal's New Mobile Strategy: No Payment Left Behind

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It slices, it dices. It accepts checks, electronic payments and plastic cards (by both camera and by swipe).

PayPal Inc.'s new PayPal Here mobile technology may seem like overkill, but the company says every payment counts when trying to convince consumers and small merchants to use handheld devices.

Mobile payments are a hard sell, even for the dominant online alternative payment provider.

Recent studies suggest that consumers have reservations about using phones for payment, either due to security concerns or just a lack of comfort (see story). 

PayPal has nevertheless been pushing aggressively at the point of sale by testing a system with large merchants. Its new mobile payment app, announced March 15, brings small merchants into the fold by helping them accept any payment method through a PayPal account.

The everything-but-the-kitchen-sink approach is "just a reflection of the world that we see changing around us," Sam Shrauger, PayPal's vice president of global product and experience, tells PaymentsSource. "Everyone sees the offline and online worlds coming together."

If PayPal gets significant momentum with its revamped mobile strategy, it could displace banks and other rivals in the mobile wallet space.

"For banks or any other payment issuer, it's vital that they not merely find themselves inside a wallet that they have no control over," says James Van Dyke, the president and founder of Javelin Strategy and Research.

PayPal’s new mobile system enables payments to be made electronically as well as by card-swipe and by using the phone's camera to accept card or check payments.

The firm’s existing person-to-person payment already already supports some of those payment methods, such as digital transfers and mobile check capture. The feature that lets it accept card payments by camera is borrowed from and the triangle-shaped magstripe reader draws clear inspiration from Square Inc.

So a lot of what's new is the packaging.

But the packaging is key — PayPal's mobile app has long been pitched at consumers, with consumer-centric functions such as a widget that helps split dinner checks and calculate restaurant tips.

Its new system, aims more directly at business owners.

PayPal is offering Here as a separate app from its consumer payment app, and the consumer app has been updated to remove (for now) distractions like the tip calculator. Instead, the updated app has a feature that lets users locate Here merchants.

The Here reader carries with it a different fee structure than what PayPal, a unit of eBay Inc., charges for online transactions.

Merchants that use PayPal Here pay a 2.7% transaction fee for debit and credit cards, says Shrauger. There is no fee for accepting checks.

To make the pricing more palatable, PayPal is giving merchants a MasterCard-branded debit card that pays 1% cash back on certain purchases.

PayPal credits its early success in online payments to having stayed ahead of fraud trends. Its push into mobile and in-store payments challenges it to keep up with a new set of fraud trends.

"What's critical here is managing the risk and the risk detection in the payment system," says Shrauger. "It's something that we have done a lot of thinking about and built a lot of technology around."

The company no doubt "integrate[s] end-to-end encryption as well as their other fraud methodologies, which should make this a more secure payment platform than Square," says Wedbush analyst Gil B. Luria, in an email.

At the beginning of this month, PayPal expanded a point of sale payment trial with Home Depot Inc. to include all of the hardware store's 2,000 locations (see story). PayPal is testing that system with about 20 merchants altogether, though it has not announced any other nationwide rollouts.

Though PayPal seems to have nearly every payment option (short of cash) covered with its new app, there are areas for it to expand.

"It's version 1.0," says Gwenn Bezard, co-founder and research director at Aite Group LLC. "It could have been nice to come up with an EMV [chip-card] capable solution … but that may come later down the road."

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