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PayPal backs QR codes for real-world dominance as online competition grows

PayPal’s decision to support QR codes for mobile payments reflects the technology’s ubiquity while cementing the company’s aspirations to transfer its online success to bricks-and-mortar transactions.

The QR code push follows PayPal’s introduction last month of Beacon, an in-store payments solution leveraging Bluetooth technology. At the same time that PayPal continues its push into in-store payments, it faces growing competition online thanks to Amazon Login and Pay, enabling ecommerce retailers to let customers pay on desktop or mobile using their Amazon account.

“There are millions of QR Codes – 2D bar code – scanners and PIN pads available in market today, and consumers already understand, and are familiar with, the technology,” said Don Kingsborough, vice president of retail services at PayPal, San Jose, CA.

“We want to use technologies that both large and small merchants already offer in their stores, so they won’t have to invest in new technology, but still help them empower their customers to access their digital wallet and leverage the intelligence of the smart phone to make purchases,” he said.

“This will help customers take advantage of special offers, gift cards, merchant rewards programs or other forms of payment that might be saved in their wallet, saving time and money.”

Real-world transactions
PayPal is looking to gain a bigger foothold in bricks-and-mortar retail stores with QR codes because overall in-store payment volume is significantly higher than how much consumers spend online.

Given PayPal’s history in online payments and early successes with mobile payments, it is well positioned to take advantage of the growing number of consumers paying with their phones in stores.

However, PayPal’s strength in online payments is key to its continued growth going forward as consumers increasingly look to engage with retailers across multiple channels.

Amazon’s Login and Pay initiative has the potential to put a dent in PayPal’s online dominance because of it already has more than 215 million active customers. That said, many retailers view Amazon as a competitor and may not be willing to partner with the ecommerce giant as a result.

To pay with PayPal in a store using QR codes, shoppers must first open their PayPal app or a specific merchant’s app and check-in. The app will then show a QR code or a four-digit short code to authenticate a purchase.

Users simply show their phone screen at check out to pay. If the retailer has a bar code or QR code scanner, he or she can simply scan the QR code on the shopper’s phone screen. If the retail does not have a scanner, a code appears on the shopper’s phone that can be keyed in at checkout.

The service is expected to be available early next year.

QR codes dominate
With PayPal getting behind QR codes, the technology has become the dominant mobile payments technology available today.

“If you look at the environment today and we reference one of the most successful implementation s of the wallet with QR codes which is Starbucks, I certainly believe that QR codes are dominant in today’s environment,” said Arkady Fridman, senior analyst at Aite Group, Boston.

“If you look at the start-ups that are getting into the wallet space, there seems to be more folks that are focused on QR codes as opposed to other technologies,” he said.

QR codes have quickly ascended in mobile payments over the past year based in large part on Starbucks success with its mobile payments app that leverages the 2D bar code technology. In the process, near-field communications has been pushed aside as the preferred method for in-store mobile payments.

The reason why QR codes are gaining in mobile payments is because any smartphone can display them, whereas a lot of phones still do not have NFC technology embedded in them, including the iPhone. This means QR code-enabled payments are possible for a much larger percentage of the population compared to NFC-enabled payments.

At the same time, the bar code readers required at retail to process QR code payments are also much more widely available than then contactless terminals needed for NFC payments.

This ubiquity is what makes QR code payments attractive to Starbucks, LevelUp, MCX – a consortium of retailers working on their own payments solution – and now PayPal.

Mobile payments still evolving
Support for NFC is also weakening, with Google Wallet taking steps to broaden its reach beyond NFC-enabled payments. Also, Apple continues to shy away from embracing NFC for the iPhone.

However, the mobile payments space is still young and quickly evolving, meaning that just because QR codes are dominant today, this is not necessarily going to last.

“Are QR codes more prevalent in the marketplace today? Absolutely,” Mr. Fridman said.

“Do QR codes have a guaranteed success in the marketplace? Absolutely not,” he said.

“If you take a look at PayPal themselves, or other players, they are very open about saying that when other technologies become prevalent they will figure out how to leverage those technologies if that is the right approach.”

For example, Bluetooth is one of the technologies also being looked at as a mobile payments enabler. Both PayPal and Apple have gotten behind the technology, which transmits a signal from a user’s smartphone to a beacon inside a store to identify users and enable transactions.

Flexible approach
Together, PayPal’s QR code and Bluetooth strategies point to the need for a flexible approach to mobile payments thanks to a lack of consistency in hardware options for both consumers and retailers.

“By supporting multiple technologies, PayPal allows retailers to either leverage existing technology, or choose the solution that will introduce the least amount of change impact for their organization, and thereby reduce the overall cost of implementation,” said Brian Stein, managing director at Pervasive Path, Cleveland, OH.

“This, when coupled with its long term relationships with consumers, may allow them to maintain a leadership position in the mobile payment space,” he said.

There could also be other new technologies introduced. Or NFC could regain some traction.

In the end, the winner will be whichever is able to provide ubiquity coupled with the best user experience.

“All of these companies are focused on the commerce experience,” Aite Group’s Mr. Fridman said. “They will support whatever technology that will provide the greatest ubiquity and acceptance as well as allows consumers to easily make payments.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York