PayPal and Discover – A game changer?

Today’s announcement that PayPal has partnered with Discover Card, another closed loop payment company – but in retail, could mark a game changing scenario in the land grab for alternative payments in retail. While Discover certainly doesn’t have the reach of Visa and Mastercard, it does provide a significant boost to PayPal’s merchant acquiring network. This is a smart move for both companies since Discover is the network that lags behind the others in terms of acceptance and issuance, and PayPal knew that it couldn’t win the game by organically acquiring its merchants.
Still, as an ex-PayPal Mobile exec and as someone who has used the PayPal payment at Home Depot, I believe the user experience is flawed. Having the consumer type in their mobile number and PIN is an experience that derives from a technology solution that stands without the need for partnerships and significant POS upgrades rather than the right consumer experience. The problem with the mobile number and PIN method is that it goes against the grain of the user behavior everyone else in the industry is promoting (card swipe, bar code off the phone, and NFC). This leaves PayPal alone in building that behavior which is very heavy lifting, and one that would require a SIGNIFICANT value proposition to the convince consumers to try – a value proposition well beyond what is provided by PayPal today. Can PayPal pull this off? PayPal has never been known to really understand their consumer base. They never had to as they could ride on the coat tails of eBay to get their first 50+ million users. Or will PayPal finally shift into the technology handshakes that are promoted by the industry? Starbucks and the airlines finally got us all used to the barcode on the phone. Will PayPal finally adopt this handshake? Or do they believe that the laser required to read the bar code is too much of a hurdle for its now Discover merchants to buy into (let alone NFC POS readers)?
While the Discover deal is a huge boost on the merchant side, it’s now time to focus on the consumer. Let’s see whether PayPal makes a drastic change to the consumer experience as well. An Apple deal would be the perfect marriage, but perhaps too uncharacteristic for Apple…

One response to “PayPal and Discover – A game changer?

  1. Indeed a good deal for Paypal. But I wonder what made Discover accept this. They have such a fantastic acceptance at the POS and good closed loop rails and they CAN come up with payment schemes that can trump many other players. If it is just a per transaction fee that they are after in this deal, they’ve grossly undersold.

    As for Paypal, we will need to see how much they charge the offline merchants. At this point, they are not much differentiated from other cards from a merchant’s perspective. They don’t bring any incremental customer and if they are not different in the rates, it is not a game changer for the merchants.

    As you’ve pointed out, Paypal definitely needs to do lot of work on incentivising the offline early adopter consumers. Even though they have unmatchable features, the user experience can be improved by a mile. They don’t have any offers/coupons schemes yet. The consumers are forced to use their DDAs as the primary funding source if they have a DDA attached to the wallet. So, they are not very flexible from a consumer perspective.

    They may be the leader in the online world, but they are not YET suited for the offline world. This deal definitely puts them in the right direction, but they have a long road ahead. Good thing for Paypal is that they aren’t stuck with any uncontrolled problems (unlike Google being stuck with NFC).

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