PayPal checks in to mobile payments space
PayPal has launched a new mobile payments service, an extension of its existing app functionality that allows users to pay for low-value transactions. The company’s well-known brand boosts its reach but is the platform scalable and does that even matter?
PayPal’s new mobile payments service uses similar technology to social media such as Foursquare and Facebook, where people ‘check in’ at certain locations.
PayPal users that check in to participating retail outlets will become visible on the merchant’s system, at which point a payment can be made.
The development is the next step in the race to provide a viable, mass-market mobile payments platform, a goal many institutions have been working on but none has yet decisively achieved.
The app will allow users to go on their lunch breaks without their wallets – so long as they are based in Richmond, London, where participating vendors are based.
However, the scheme is not a pilot with set geographical boundaries. The roll-out started here because it is the site of PayPal’s corporate headquarters and it has been in discussions with local cafés and restaurants about the scheme.
It is up to other merchants to use the app to extend the service across the country, says Rob Skinner, director of PR at PayPal. “We are talking to many businesses about this already,” he adds, though he will not be drawn on the question of growth targets.
Unlike some mobile payment platforms, PayPal’s offering is inexpensive for merchants to install, above the standard charges for accepting payment via PayPal, and does not require any existing payments infrastructure to be replaced. The system can be easily integrated into existing point-of-sale systems.
The system’s obvious advantage is this simplicity. This puts it in stark contrast with, for example, near field communication (NFC) technology, another of the great hopes for mobile payments.
“It has been widely reported that PayPal is sceptical about NFC because it looks like technology for the sake of it,” says Skinner. “We want to make life simpler, and it’s hard to see how NFC achieves that.”
Skinner says PayPal’s check-in payment will prove more compatible with emerging trends in shopping behaviour. One example is ‘ordering ahead’, which PayPal believes will become prevalent: if people buy a cup of coffee on their way to work every morning, why should they wait at the counter to order and pay every time?
“Technologies like NFC make the assumption that the check-out will remain the same,” says Skinner. “Things are changing. We want people to use their phones to skip queues and make paying easier.”
PayPal will have some advantage over smaller non-bank payments providers, in being widely recognized and having a broad, existing user base. It is also banking on users trusting its track record in handling personal data, which it insists it will never share with third parties.
And no data is stored on the phone, adding a layer of security, although it always advises its users to protect their phones with an authentication code or password.
However, although PayPal described security as “of fundamental importance”, one technology consultant questioned whether the offering was sufficiently secure to become a mainstream form of payment.
Merchants using the system “are likely to be less stringent in their security because of their lower ticket value”, says Richard Sanders, a technology consultant. “The acid test will be when it is adopted by the supermarkets, and what happens if and when organized crime takes an interest.”
By focusing on cafés and restaurants, where transaction values are likely to be generally small, it might have found its niche. Whether it will prove scalable to supermarkets, department stores and garages, where transaction sizes will regularly be bigger, remains to be seen.
It was the resistance of such outlets to contactless payment that ensured its roll-out was so slow, says Sanders. Such locations might also be better suited to the old check-out model PayPal seeks to replace.
In that sense, check-in payment exemplifies a new generation of niche payment systems, well suited to a specific type of transaction, without necessarily looking to compete for domination of the entire payment space in the way credit cards did, for example.
It looks well suited to cafés and restaurants because it is a very personal business, where waiters socialize with clients and payments are often made away from a central cash register. The system will appeal to merchants, who will benefit from enhanced information about their clientele, says Skinner.
“Being able to see who a customer is helps deepen the relationship,” says Skinner. Getting on first-name terms with clients might lead to increased customer loyalty: an added bonus for a payments system.