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PayPal looks to merchants as it builds mobile payments offering

While PayPal provided some more color around its push into mobile payments last week, a lot of details are still missing, such as how it will enable in-store payments.

PayPal pointed to the convergence of smartphones, social media, online and offline shopping in a blog post last week that explained how the company is trying to provide consumers with a better shopping and buying experience. The company said it is rolling out a one-stop shop for merchants to engage their customers directly during every part of the shopping cycle, including generating demand for consumers through location-based offers and making payments accessible from any device – not just a mobile phone.

” And let’s be clear about something – we’re not just shoving a credit card on a phone,” said Scott Thompson, president of PayPal, in the blog post. “PayPal is re-imagining money and making it work better for merchants and consumers – whatever device you’re on, wherever you are in the world, and however you prefer to pay – whether that’s cash, credit, or installments.

“We’re rolling out a one-stop shop for merchants to engage their customers directly during every part of the shopping lifecycle –  generating demand from consumers through location-based offers, making payments accessible from any device (not just from the mobile phone), and offering more flexibility to customers even after they’ve checked out,” he said.

Virtual wallet
PayPal wants to continue to be a leader in alternative payments and recognizes that providing additional services such as mobile in-store payments, loyalty and other services are necessary for it to remain competitive going forward.

The services PayPal is offering merchants include bar code scanning, geo-targeted mobile advertising, real-time inventory ability, mobile and point-of-sale payments and a virtual wallet.

“Can PayPal make this about NFC? Unless they make some big announcement with the handset manufacturers, this does not seem likely,” said Mark Beccue, senior analyst at ABI Research, New York.

“That suggests it is going to be an independent offering, which is not a bad thing,” he said. “It won’t leverage a secure payment but might be an online store or online checkout.”

The question is how will consumers complete in-store transactions using their phones.

Google’s mobile wallet is tied to NFC, which means the data is stored on the phone and it does not have to have an Internet connection to make a payment.

Whether or not PayPal will be able to offer something similar is not yet clear.

PayPal is also promising that this will not be a mobile-only solution and will be a virtual wallet instead of a mobile wallet.

“It makes the wallet functionality portable,” Mr. Beccue said. “When you are at home, you can open up PayPal and all of these elements would be available to you here as well.”

PayPal is trying to work more closely with local merchants by providing these services.

The issues PayPal face in trying to get merchants to sign on includes that it is not a guaranteed payment from a payment network like Visa or MasterCard.

On the plus side, merchants typically pay lower fees through alternative payment methods. PayPal also has a large built-in consumer base through eBay that it can leverage to encourage merchants to sign up.

“Who do you sell all these things to? A merchant,” Mr. Beccue said. “The idea is that you have a PayPal wallet on your phone and you can get to all of these things but how does it know you are in a participating merchant? How do you pay? How do you secure the transaction?”

In July, eBay acquired Zong for approximately $240 million (see story). The deal could enable physical world mobile transactions for PayPal through merchant accounts by letting shoppers make an in-store purchase and charge it to their mobile phone bill.

The opportunity in mobile payments is exactly what PayPal is describing, providing value throughout the commerce experience from consideration initially to buying and after-sales support, per Charles Golvin, a principal analyst at Forrester Research, Cambridge, MA.

“They are focused on the right opportunity—whether they realize it in a seamless, transparent, low cost way for merchants is the devil in the details,” Mr. Golvin said.

“All of these vendors are focused on the same opportunity,” he said.

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