Tag Archives: paypal

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…

PayPal at Home Depot – How does it Work and Does it Make Money?

3/1/2012
As an ex-PayPal Mobile exec, I was pleased to find that PayPal has finally made strides into retail with their recent announcement around their partnership with Home Depot.

Since the internal pilot had completed and the ability to pay using PayPal was open to all PayPal users, I wanted to test the system out and understand how it worked (and what the business model looked like), so I signed up for the service and went to Home Depot to try it out. (By the way, I couldn’t find anything on the site to get me to the registration area for this, so I finally had to reach out to a PayPal mobile employee to find out where I could sign up!)
Here’s what my big question was.. (and this relates to the business model)… Is PayPal in the red or in the black on these transactions? This was the constant struggle we had 5 years ago while I was at PayPal when we were first contemplating retail payments using mobile.
What does this mean?
PayPal enables people to fund their accounts in several ways. You can have balances from selling goods or receiving money from others (or now depositing from a check.) You can link your bank account. You can get PayPal credit. Or you can link your credit/debit cards to fund your PayPal account. The cost to PayPal is in order of this priority. Balances are near zero cost. ACH pulls from bank accounts are pennies. Providing PayPal credit is cheap, but funding using cards is expensive because PayPal has to pay Visa, MC, or Amex for card-not-present transactions (although they get volume discounts.)
The difficulty is this: Card present interchange fees are SIGNIFICANTLY lower than card-not-present fees. This means that if you fund an account with a card-not-present card for a card-present transaction, you lose a MINIMUM of 100 basis points. So… on to my test.
Would PayPal allow me to pay for something at Home Depot using cards? (And note that American Express cards are even more expensive than Visa or MC)
So, I unlinked my bank account. I drained my PayPal balance (note: PayPal always pulls from the least costly sources first, so it was necessary to do this.) I unlinked my Visa/MC cards, and kept only the Amex card as the funding source. Would PayPal allow me to do the transaction?
1. Went to Home Depot Self Checkout Kiosk. To see pictures, visit my PINTEREST site
2. Chose PayPal as the method to pay on the self checkout kiosk
3. When prompted by the POS, I entered my mobile number and PIN
4. “Declined” = PayPal does not let you pay using American Express
5. So, I then added a Visa/MC card
6. Went through the flow again
7. This time, it was accepted. I got a paper receipt and a text message with a link to a digital receipt from PayPal
Bottom line – PayPal is losing money on transactions that are funded by cards, but I’m assuming they are assuming that they will either make it up with users who fund with balances, ACH pulls, and credit, or they will make it up in value-added offerings that they will later launch that compliments retail payments.
For any PayPal folks reading this blog, here’s a suggestion on better user experience:
1. Make it easy for people to register for this by making the registration page easy to find
2. The checkout is confusing because on the POS, there’s a button that says “Pay with PayPal” but if you hit that button, it prompts you for the PayPal card. Users don’t know that they have to choose the PayPal option on the kiosk rather than the POS
3. Let consumers know AHEAD of time during registration that AMEX-only funded accounts won’t work
Stay tuned to see how this all pans out…

Internet in “The Real World”: PayPal payments off-PC?

The distinction delineating online and offline payments is blurring as the world becomes more Internet-connected outside of the home or office. This mash-up of technology begins to create new opportunities for alternative online payments companies to play “in the real world.” In a recent conference in Canada, Scott Thompson, President of PayPal, spoke of the new ways people will pay in the future based on immediate consumption rather than intended future usage, citing the ability to pay directly to a journalist rather than subscribe to magazine or newspaper. From that discussion, CTV writes, “PayPal plans to have a presence on virtually anything that’s connected to the Internet – starting with smart phones and moving to Web-enabled TVs and other connected gadgets…”
As vending machines, parking meters, televisions, and mobile phones become increasingly Internet-enabled, PayPal’s 84 million consumer accounts and 8 million business accounts may be leveraged in the “real world” as a potential closed-loop payment rail. Those accounts, which have emails and passwords and some which have mobile numbers and PINs, become an interesting method to enable such payments for various Internet-connected devices. Many of these channels today leverage cash, which suggests a green-field opportunity in payments. Some of these devices are increasingly accepting cards, which begins to question how Visa (NYSE: V), MasterCard (NYSE: MA), and American Express (NYSE: AMEX) may react.

As more devices become Internet-enabled, the existing rails of off-line payments players may not be able to maintain the market dominance seen in the past. The battle of connectivity and payments rails will become an interesting one.
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Menekse Gencer founded mPay Connect, a consulting service for clients seeking to launch mobile payments. Her consulting service advises banks, mobile network operators, and third parties on go-to-market-strategy, product design, and business development. Her market expertise extends from North America to emerging markets such as Bangladesh and sub-Saharan Africa. Prior to founding mPay Connect, Menekse led PayPal Mobile’s Business Development efforts in North America during which time she closed PayPal’s first mobile network operator deal to launch PayPal Send Money on Sprint.

Menekse has an MBA from Wharton and a B.A. in Macroeconomics from Harvard University and was previously featured on the cover of Fortune Small Business Magazine for her innovative startup in emerging technology. She is the founder of the Mobile Payments Series(TM) initiative which hosts panel discussions and networking events for professionals in the mobile money industry and has over 400 members in her LinkedIn Group: Mobile Payments Series – mPay Connect. She is a recognized expert in this field and has lectured on mobile money at events for Harvard Business School, Wharton MBA, and Columbia Business School. She is active in assisting organizations such as The World Economic Forum, mHealth Alliance, and IntraHealth on the intersection of Mobile Finance with industries such as Agriculture, mHealth, and Off-Grid Energy. She is a frequent guest speaker at mobile money conferences in Africa, South Asia, and The Middle East. Menekse is a board advisor to several startups in this space and has advised angel investors, venture capitalists, and hedge funds on the mobile money industry. She has 17 years of experience as a consultant and industry leader in high tech, mobile, and financial services.

To learn more about her consulting services, contact her at: mgencer@mpayconnect.com.