Article

PayPal demos its offline strategy

PayPal gives merchants a sneak peak at how it plans to take on the offline world.

September 14, 2011 by James Wester

PayPal continues its efforts at becoming a player in the offline payment space. The payment company promised not long ago that it would be launching a point of sale product later this year; apparently, that time is at hand.

During an event where PayPal introduced its new offline offerings to a group of around 150 major retailers, PayPal gave Tricia Duryee from AllThingsD a sneak preview (lucky!) of its new strategy.

The short version of Duryee's story is that PayPal has come up with an offline strategy that leverages its 100 million account holders while not forcing retailers to invest in new equipment. In other words, no NFC. (That's not surprising given the comments of eBay CEO John Donahoe during a recent analyst call when he referred to NFC as "not for commerce.)

According to Duryee, PayPal presented a number of scenarios to demonstrate how it will make payments in brick and mortar stores happen. Duryee said that none of the scenarios require merchants to update their infrastructures or purchase new terminals.

Duryee said there are no special phone or account requirements for customers either, other than having a registered PayPal account.

Duryee's report said PayPal's new strategy lets account holders pay by entering their phone number and a pin code on POS terminals, basically replacing account numbers with phone numbers. She also said (and this is very interesting) customers can pay by swiping a plastic card issued by PayPal. The card doesn't have an account number and is not associated with any bank, Duryee said.

(The card part sounds much like American Express' Serve account that has an app for peer-to-peer transfers, an account number for online purchases and a plastic card for offline transactions.)

Duryee said no photographs were allowed during the event and then described three of the four scenarios presented as demonstrations of PayPal's offline capabilities:

"Grocery store: In this scenario, PayPal demonstrated how someone could use their phone number to pay. At the payment terminal, a user will be able to enter their phone number and a pin code. The purchase will then be applied to the bank account or credit card associated with their PayPal account.

Coffee Shop: In this scenario, PayPal demonstrated how it will allow users to continue using plastic cards if they wish. The card will be issued from PayPal and will not have a Visa or MasterCard logo on the front and no visible account information. As usual, the card will be swiped at the terminal and have an associated pin code.

Hardware store: In this scenario, a customer in a store sees a barbecue set that they’d like to buy. Using the phone, they scan the barcode. PayPal would find that exact item that is in stock at that retailer, and the user would be able to check-out in the aisle and have the item shipped to his or her address without ever going to the register."

PayPal has released a video showing their strategy in action, sort of. (See below.) The video looks at various use cases at a high level, but it leaves some important details out for now. For instance, according to Duryee's report and the video, in most cases the mobile device doesn't really facilitate the offline purchase in any way. Most of the retail use cases presented look more like location-based marketing check-ins to receive discount offers or to place an online order.

How all this plays out for PayPal is obviously the big question. The report doesn't mention how PayPal will encourage merchants to accept a PayPal account at a higher cost than the bank or credit card the account is associated with. It also doesn't mention how PayPal will convince other parties in the payment ecosystem such as terminal manufacturers and merchant acquirers to play along as well.

What is clear is that PayPal is serious about moving offline.

Video:

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