PayPal goes plastic

24th August 2012

Wired's conclusion was that the PayPal deal "looks like a chance for the company synonymous with e-commerce to plant itself solidly in the world of plain old commerce". 

PayPal claims that it is building a better card. According to Wired, from next April many of the 7 million merchants that currently accept Discover cards will begin taking PayPal as a form of payment: "In practice, that means PayPal account holders will be able to get a card linked to their PayPal "digital wallets" that they can swipe just as they would any other card."

"Shoppers have access to whatever funds they have directly in their PayPal accounts – whether from their own bank accounts or money from other people – along with any credit or debit cards." They will also be able to link gift cards and coupons to the wallets. PayPal argues that it will be a ‘physical connection to your online account.'

PayPal has already been doing something similar through the Mastercard network. As Chris Rieg points out: "I've owned a mastercard debit card from PayPal for the last 2 years. (This is) connected directly to my PayPal balance, with backup funding to my bank account. I prefer to use that instead of my banks debit card for the 1% cashback I get on all purchases. So I guess the real news here is that they are branching out and dropping Mastercard, the rest is old news."

PayPal has a number of problems; the question is whether this is the solution. Specifically, it is up against increasingly bigger, brighter technology. In Europe mobile phone operators Vodafone, Telefónica's O2 and Everything Everywhere, (originally Deutsche Telekom and France Télécom) are coming together to build a single payments platform. ‘Project Oscar', in theory, can be used by "retailers, banks and other financial services groups to allow phones to be used as mobile wallets stored with cash and installed with different credit and debit cards." 

PayPal has already teamed up with Google to complain to European competitions regulators: "EU's ongoing investigation into Project Oscar has been taking informal submissions from PayPal and Google as it mulls over the competitive impact of permitting network operators to create a standardised platform, under their own control, for mobile commerce applications including those using NFC." Its chances of success are unclear, but it shows how worried it is about the problem.

The Project Oscar technology is already at a relatively advanced stage and was trialled at the recent London Olympics: "A limited edition of Samsung's Galaxy S3 mobile handset – the official phone of the games – will be loaded with Visa's mobile payment application, Visa payWave, and given to athletes and selected triallists.

"These users will then be able to buy items by waving their handsets in front of any of the 140,000 readers already installed in taxis and shops across the UK – including the Olympic Park."

Equally, MasterCard has already created ‘PayPass', a unified network designed to allow shops to accept digital payments made by consumers either electronically in stores or online using a smartphone, laptop or tablet.

If that weren't enough, Matt Asay of Cloud Business argues that PayPal has been hit by the declining relevance of eBay. It has coasted in the absence of any real competition, of which there is now plenty. He highlights competitors such as Square, Braintree and Stripe, "each of which makes payments much easier than PayPal, albeit for different crowds and in different ways".

The piece also quotes Pando Daily's Sarah Lacy: 

"PayPal has been suddenly outdone on almost all fronts: Peer-to-peer payments, servicing both companies with high-touch service needs who are better off with Braintree and developer-driven start-ups who fall for Stripe. And thanks to years of not having to try, it's unclear whether [PayPal] could reverse it even if they agreed."

Asay, in contrast, argues that PayPal can reverse its current weakness, but teaming up with existing credit card providers is not among his solutions. The real solution lies in taking on Amazon, which PayPal has the evolving technology to do: "Retailers, online and offline, are scared to death of Amazon and its stranglehold on e-commerce. By providing an end-to-end commerce solution that helps all vendors do business online and offline, eBay's X.commerce can be quite disruptive to Amazon's grip."

We have talked before on Mindful Money about Amazon's potentially disruptive influence.

PayPal may make this latest initiative with Discover a success, but it is difficult to see its unique selling point for the consumer. PayPal faces some considerable challenges. It still has the wherewithal to resist some of these competitive pressures, but this deal is unlikely to do much to address its real problems.


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