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Breaking down the PayPal instore payments offerings

Thursday June 21 2012

Retail software analyst Michael Koploy discusses recent moves by the e-commerce payment processing giant PayPal to embrace the opportunities on offer in retail stores through mobile payments

Retail software analyst Michael Koploy discusses recent moves by the e-commerce payment processing giant PayPal to embrace the opportunities on offer in retail stores through mobile payments

 

Analyst firm Gartner recently predicted mobile payment transactions would surpass $171.5 billion in 2012, and projects a market worth over $600 billion by 2016. To date, there are few players that have taken mobile payments by storm. One of company that has embraced the opportunity, however according to Michael Koploy, enterprise resource processing (ERP) analyst for Software Advice, is e-commerce payment processor PayPal.

 

Koploy said PayPal has worked hard over the last few years to enter the instore payments arena. They currently have four different in-store payment processing options for shoppers:

 

1. PayPal Here, which is a direct competitor of existing services like Square and Intuit GoPayment.

2. PayPal instore payments, a new option for customers that is available alongside traditional options like credit, debit and cash. Home Depot piloted this service earlier in 2012, and PayPal will be deploying it in 15 other US retail chains throughout this year.

3. PayPal InStore App, only available in the UK, allows customers to use a barcode generated on the screen of a customer’s smartphone at checkout to pay for items.

4. PayPal mobile payments app in the US allows American customers to “check in” to stores and pay for items at checkout without having to provide payment or identification. A number of American point-of-sale (PoS) software vendors now integrate with the PayPal mobile payment app to offer this functionality.

 

Considering the options

 

“The first option is interesting because it provides the ability for merchants to process credit card transactions and work directly from their PayPal accounts – ideal for pop-up retailers or merchants that are transitioning from an online-only service,” Koploy continued.

 

“The second offering will most likely be the most pervasive and will have the largest footprint in retail. But, it doesn’t really offer anything new for customers. How many customers will choose this option over using cash or card? For the rare instance that the customer doesn’t have any form of payment, this is a viable option, but seems too small of a niche to see broad adoption.

 

“The third and fourth options are the most interesting, because they provide a method for customers to process mobile payments – today. Unlike US-based ISIS and the Google Wallet, these mobile payment solutions require a near-field communication (NFC)-enabled smartphone and a retailer with upgraded terminal hardware,” he added.

 

Consumer adoption prerequisites

 

Koploy said PayPal’s payments app do three important things that are essential to any mobile payment offering to gain wide consumer-adoption:

1. Checkout simplification: In order for a customer to choose a mobile payment solution over pulling out their wallet, the system must be simple to use – and fun. PayPal’s barcode or check-in app allows customers to easily pay.

2. Improve customer service: The US version of the PayPal app allows customers to check-in and alert retailers that the customer has entered the store. In addition, the customer’s purchase history is displayed within the PoS software, so the retailer has insight into the customer’s previous purchases.

3. Loyalty programme integration: If retailers can integrate their loyalty programmes into PayPal’s, customers will be more encouraged to check-in and use the service in return visits. Customers will naturally associate the innovation of the PayPal service and retailer – providing a platform for the retailer to build on in its marketing and branding.

 

“Retailers that are evaluating new methods of payment should ask if one of the four PayPal options is a good fit for their businesses,” concluded Koploy. “In addition, retailers that are evaluating new PoS solutions should consider if the solution integrates with the PayPal mobile payments solution.”

 

Software Advice is a US-based consultancy that evaluates retail software. Software Advice ERP analyst, Michael Koploy, can be reached on Twitter at @POSAdvice.