10 Comments

Summary:

PayPal Here, the payment giant’s new Square-like payment system, is a solid competitor but won’t take down Square immediately. But with PayPal’s assets and larger strategy to win over real-world payments, it’s got a shot to overtake its rivals. That is if it can execute.

Screen Shot 2012-03-15 at 3.26.45 PM

PayPal confirmed what we first reported earlier this week with Thursday’s introduction of a Square-like mobile card reader called PayPal Here. My colleague Ryan Lawler has a good write up after attending the press event in person. I’ve been formulating my thoughts, and I think that PayPal has a pretty solid competitor right now, but one that still has plenty of question marks. I don’t think Square has to worry, at least for now.

What we’re seeing from PayPal is not just an attempt to dislodge Square. The new dongle and accompanying app for merchants reveals the company’s larger ambitions to take payments to the physical world. That road runs through Square territory in the small business market, but PayPal wants it all, whether it’s Home Depot-sized national retailers or individual mom-and-pop stores. And it’s seeing that larger vision that makes me think that PayPal could be on to something big that will affect Square, Isis, Google Wallet and many other mobile payment plays. It will take a lot of focused execution, which is no given, but the company continues to line up the pieces to be a big real-world payment player.

First, here’s what I think PayPal Here has going for it:

  • It seems like a pretty straightforward competitor to Square with a simple process for both consumers and merchants. I think PayPal did their homework and also cribbed a lot from Square’s notes. This is still significant because people have complained about the transaction process with PayPal in the past. The extra entry methods are nice including card capture scanning using Card.io’s camera technology. But what is more interesting is the fact that users will be able to pay from a new PayPal app. PayPal says that 17 million PayPal mobile apps have been downloaded and that provides a very big user base to offer mobile payment services. Square’s Card Case app is also very slick, but I doubt it’s been downloaded anywhere near that amount.
  • PayPal has also built in some of the same geo-fencing technology as Card Case, so users can notify a business they’re on their way or inside a store and check out without having to go to the counter. They can pre-authorize payments for a merchant and then pay with their face. This is very similar to Square’s hands-free payments with Card Case, but it’s a nice feature because it removes some friction for transactions and brings customers and merchants closer.
  • On the merchant side, shaving a little off the transaction fee is always nice. PayPal will charge 2.7 percent on transactions, just under the 2.75 percent Square charges. PayPal is really trying to push hard on the fact that merchants can also get 1 percent off on transactions using a PayPal debit card that pulls money from a PayPal account. And leaving their money there gives them instant access to it. But that assumes that merchants want to keep their money inside a PayPal account instead of moving it to a bank account, a process which can take one to three days. Square deposits directly into a merchant’s bank account. I doubt a .05 percent fee reduction will convince a lot of merchants, and I’ll have to see how many are enticed by the extra 1 percent off debit purchases. My sense is some will be, but to assume that all of the money brought in will then be used by debit purchases, effectively bringing the 2.7 percent down to a touted 1.7 percent, is a real stretch.

Here are the questions I have about PayPal Here:

  • The system lacks a number of important features including offers and rewards, which is something that PayPal’s Sam Shrauger, vice president of global product and experience, said is on the way. That’s an important component in helping establish a better relationship with users. That could be a differentiator for PayPal but it’s a non-factor at this point. PayPal has said that location-based offers will be delivered through its mobile wallet, thanks to its purchase of WHERE so this could be turned around soon. Also PayPal lacks good inventory and analytics data for businesses.
  • PayPal also has to convince some skeptical merchants that it’s in their best interest to partner up. Some merchants have complained in the past about PayPal’s practices, including the holds it places on merchants funds in cases of disputes or possible refunds. Shrauger said that PayPal will place holds on funds only when a merchant keys in or visually captures card transactions worth more than $1,000 in a week. Some portion of the money over the $1,000 could be held for up to 30 days. This is meant to ensure trust in the system for both merchants and customers, but it may again raise questions from merchants who don’t like the practice at all or don’t trust PayPal.
  • The fine print for PayPal Here actually says the transactions fees are valid until April 15, 2012. Schrauger said they have no intention of changing the fees, but it’s unclear why the date was set there.

A lot of what PayPal has described is still not a knock-out blow against Square by any means. Most people praise the ease of use and simplicity of Square and just matching that won’t change the game automatically. But I think PayPal is just going to keep cranking and if it executes in a smart way, that’s when things get interesting. This is how they can take PayPal Here and make it a powerful payment option:

  • If PayPal can get tied into X.commerce, eBay’s multi-channel commerce platform for businesses, then you start providing businesses with a lot of intelligence and tools to manage inventory and generate traffic. And businesses can start to coordinate their online and mobile sales with their in-store efforts. If PayPal can be that one-stop shop for them, it can be a more appealing resource than just Square. Square is trying to go that route and introduce more inventory features in its new Square Register iPad app. And Intuit has been trying to leverage its business software to help propel its GoPayments system. But PayPal has a lot of assets to bring to bear and by building a platform in X.commerce, it can offer a broader set of tools and applications that businesses need.
  • And if PayPal can start gaining momentum on its in-store payment efforts with larger retailers, it can have a snowball effect, helping consumers think of it as a primary way to pay in all physical stores. Right now, that’s a challenge for many of the mobile wallet and payment acceptance systems. They work largely on the low end or in much bigger retail chains. PayPal’s digital wallet could work in all kinds of stores, making it more of an everyday tool.
  • PayPal has a global operation customer service agents and sales people. That can help the company move forward and win over customers and merchants in 190 markets where it operates. It has more than 100 million users and 9 million merchants, some of whom have physical locations — this is a great starting point for PayPal. Square and many other services are still ramping up in the U.S. and don’t have a clear path to go international.

But, again, it all comes down to execution. PayPal hasn’t been known for providing that elegant experience or beautiful user interface that endears it to many people. Square COO Keith Rabois, who used to work at PayPal, said the company has let its brand fade and will be overtaken by Square. PayPal has to put it all together and show that all of this experience and all their assets actually mean something. This is no small task and the fact that it took so long to even get to this point suggests that execution hasn’t been great in the past.

But the pieces are there and the will seems to be there too. EBay CEO John Donohoe, who is leading PayPal for the time being, seems fired up about payments and the modern realities of commerce. The company seems to get just how big the opportunity is here. PayPal Here is just one piece of a much bigger puzzle, but it looks like a good step. But the fight is going to be long and there’s still plenty of opportunity for rivals big and small to rise to the top.

  1. College of Content Thursday, March 15, 2012

    just heard the news today about the latest censure move PayPal made. Unsure if it will boost business for them, but it certainly does sound good. for now, it looks as if the new PayPal venture is going to have to deal with getting through a lot of trials and tribulations, before they start seeing revenue. Through it all, college of content predicts that not only will they achieve their business objectives, but PayPal here will be spoken about all across the web on sites like Forbes, CNN, Bloomberg, wired, TechCrunch, and so forth. Not going to go into all the names of the news sites, which never rough idea who’s not talk about PayPal again in the near future. Either way you look at it, PayPal is destined to make more billions!

    http://www.collegeofcontent.com/Art/7663/95/5-Times-Using-PayPal-For-An-Online-Home-Business-Makes-Sense.html

    Share
  2. Great points made! Even with all the conveniences and pluses of Paypal, I still think I will use Square for my mobile device. I do not like the thought of having all my banking, buying, selling transactions go through Paypal alone. I am hoping that with Paypal with its new mobile paying device will provide much-needed competition for Square. And that means retailers, like me, will benefit!

    Share
  3. Looks like a cheap knock-off…
    http://scottsscripts.wordpress.com/

    Share
  4. Paypal charged $30/mo. for their online “Virtual Terminal” whether you use it or not. For an artist using it to enter charges online this fee makes a difference. Square does not charge any monthly fee, so I switched to Square. It was a hassle turning off the Paypal monthly charge during the winter months when I was not using it. Squares business model certainly works better for the art fair artist. It will be interesting to see if Paypals new mobile app drops that monthly fee.

    Share
  5. Whoever creates an open system for creating custom tools with a revenue mechanism will win. A register with services associated will be a great product would be an ideal product. I am happy to see that Square moved as fast as they did in the register space, but maybe Paypal will wake up and smell the openness coffee.

    Share
  6. A services API would be nice, along with a revenue mechanism for developers.

    Share
  7. Scott Bellefeuille Friday, March 16, 2012

    Not sure if it identifies the technology, but knowing some merchantservice tech, i know that mag only is old technology, chip certification and chip transactions is what visa and mc are going towards. and certain governments are saying chip enabled technology has to be a standard.

    Share
  8. Reblogged this on Two Letter Worlds and commented:
    PayPal has created “PayPal Here” which is almost the same as what Square has done, but creating a mobile payment processing unit for credit/debit cards. Although many people think that Square has a chokehold on this market, I know that there are major concerns with their long-term future. As Ryan Kim states, they aren’t in danger in the short-run, but a company that can achieve success on a massive scale entering the market can scare anyone.

    Share
  9. Philip Charles Cohen Friday, March 23, 2012

    And, just for a laugh, some analysis of “PayPal: The New Way To Pay In-Store”, PayPal Digital Wallet, PayPal Debit MasterCard, PayPal Here, PayPal Local and Watch With eBay …

    http://forums.auctionbytes.com/vbulletin/showthread.php?t=24611

    eBay / PayPal / Donahoe: Dead Men Walking

    Share
  10. Dempster Stone Friday, April 13, 2012

    I think the winner in this game will be the one that opens up its api and lets developers buiild disruptive apps the feed off their platforms.
    We are one such disruptive start-up building cash register apps for mobile devices. The pos market is a huge disruptive space. Many apps will need to be built to meet the needs of the merchants that exist in it. Paypal has a huge developer network. If they open this api sqaure will be demolished as they will empower and fertilize a huge market space worth billions. I think this should be paypals key strategy.

    Tillify.com would certainly jump on board with which ever provider can offer the service, Clearly consumers don’t want lots of wallets or apps to pay at merchants. So by opening the api apps like up as well as bigger merchants can empower their own systems to use the service.

    This is key to the success in this race.

    Tillify.com

    Share

Comments have been disabled for this post