PayPal is paying attention to locally owned stores in its initiative to support in-store payments, but the small-business segment has posed many challenges for companies that try to introduce new technology.
For every emerging payments company that has found success in working with micro-merchants, there is an example of one that struck out with the same audience. Square changed the payments industry with its mobile card reader, but VeriFone stumbled when it tried to do the same thing with its Sail product. SCVNGR's LevelUp has convinced some merchants to abandon credit cards in favor of mobile payments, but Bling Nation shut down years ago after its merchant customers rejected its own mobile offering.
PayPal, which saw its earliest success serving the small merchants that sell on eBay, is going back to its small-business roots in a partnership with Mercury Payment Systems to reach locally-owned small to medium sized businesses. PayPal supports in-store payments through plastic cards or by allowing shoppers to provide just a phone number and PIN.
"What PayPal is doing here is expanding its reach through a merchant development partner. The partner does all of the heavy lifting to ingrate the payment type, and has the one-to-one contact with the merchant," says Richard Crone, a payments consultant.
Mercury says its model is based around creating comfort for small merchants by connecting them with vendors from their community.
"As part of our model, we work with local providers that sell point of sale technology to merchants and local businesses," says Matt Taylor, CEO of Mercury Payment Systems. "Small businesses don't hire marketing or technology people; they reach out to the local community to help."
To deploy new payment systems, Mercury works with a network of more than 500 local point of sale developers and a network of resellers. It will provide a toolkit to developers to help them add PayPal acceptance, and the local resellers will be trained to bundle PayPal with existing merchant services. Since local merchants have existing relationships with the developers and resellers, the migration to PayPal will be easier to understand and execute, Taylor says.
Crone likens Mercury's approach to that of Square, which lets merchants use the smartphone and tablet hardware they already own as part of its mobile payments system.
"Square made it easy. Just plug in a dongle and accept payments," Crone says. "They didn't try to change the merchant's way of doing business. That's what PayPal is trying to do with Mercury."
Other companies ran into difficulty because they tried to change the way merchants operated. For example, Bling Nation, a former PayPal partner, lost the support of its merchants when it mandated that they use its loyalty program as part of its mobile payment system.
"A lot of mobile payment companies have tried to reach smaller businesses and have run into the problem of capturing the merchant's attention, because it's too hard for the merchants," Taylor says.
PayPal did not respond to requests for comment by deadline.
PayPal's expansion to the physical point of sale also relies heavily on a partnership with Discover, which is gradually turning on PayPal acceptance across its network. PayPal is also working with Alliance Data to sign up stores that offer Alliance Data's private-label cards, and PayPal works with Micros to reach hospitality and other retail merchants.
"PayPal is taking various avenues to fulfill its aggressive push into the physical world," says Jordan McKee, an analyst at Yankee Group. "If PayPal wants to contend with heavyweights like Visa and MasterCard, singing on merchants of all sizes is a must."
PayPal will also be challenged to reach a mass of small business, McKee says. "Small merchants can often prove to be an unprofitable group to target. As a result, scaling will be key to success and profitability," McKee says.