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PayPal courts merchants, mobile users with new payments services

PayPal introduced new services for both consumers and merchants this week as it continues to focus on building a digital payments business with mobile as a key component.

As expected, PayPal yesterday introduced an attachment that will enable small and mid-sized merchants to process debit and credit cards from smartphone devices. The news follows the announcement that a revamped PayPal digital wallet will be made available in May and will include loyalty, gift card and coupon integrations for the first time.

“PayPal is a laggard in the small merchant processing market,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“Square has a big lead and the cache to stay ahead,” he said. “Intuit has been out there as well, but lacking a celebrity CEO and the word-of-mouth marketing that Square gets will keep them a distant second.”

Compelling consumer services
While PayPal is prudently building the merchant side of its payment business, it also needs to create compelling services for consumers in order to drive adoption, an issue it addressed with a pair of announcements this week.

Yesterday, PayPal announced an updated PayPal mobile application for iPhone devices that will enable users to tap on the “Local” button to find nearby businesses that accept payments via the PayPal Here reader. Once users are ready to pay, they can tap their phone to notify the merchant, who can accept the payment by referencing the shopper’s name and picture.

At the SXSW conference in Austin this week, PayPal also previewed its revamped digital wallet, which will start rolling out in May.

The new digital wallet – which is cloud-based and accessible by consumers via a variety of computing devices including smartphones – will integrate loyalty cards, coupons and gift cards. Users will also be able to set certain rules such as the ability to pay for all purchases under $100 with a specific debit card.

Additionally, starting in May users will have a seven-day grace period after they make a purchase, during which time they can change the funding source for a purchase directly from the digital wallet.

Offering coupon and loyalty integration is an important step for PayPal to gain consumer adoption, but the challenge is getting merchants to accept their payment method.

Adoption is an important issue because both consumers and merchants are overwhelmed by the numerous and growing mobile payments offerings.

The new digital wallet features bring PayPal more directly into competition with Google Wallet and ISIS’ mobile wallet.

“PayPal’s new efforts create more overlap with Google than we’ve seen in the past,” Mr. Sievers said.

“No one has cracked the code for the consumer,” he said. “PayPal’s efforts are a step in the right direction, but simply offering deals will not get the job done.

“This all needs to be easy – period. Crack that, like we did on Starbucks, and the users will come.”

Multiple screens
From a merchant’s perspective, one of the main differences is that PayPal offers lower fees for processing payments.

The company has also been touting its multiscreen approach as opposed to the mobile-only approach taken by Google Wallet and ISIS.

However, Google appears to have its eyes on a broader approach going forward.

“PayPal is mimicking the aspirations of Visa, Mastercard and Amex, who are looking at similar digital wallets,” said Mark Beccue, senior analyst for mobile services at ABI Research, New York. “PayPal has been the first to be united across payments in a physical location, remote and person-to-person.

“Google has started to look at a cross-device strategy as well and is now asking developers to accept Google Wallet for buying stuff online [via Google Play],” he said.

PayPal Here for small businesses includes a free app and thumb-sized card reader that turns any iPhone into a mobile solution capable of processing payments made via debit or credit cards, check and PayPal. The app will soon be available for Android devices as well.

Merchants will be able to swipe cards through the card reader, as well as scan cards and checks using their phone cameras. They can also manually enter card information into the app.

Merchants will also be able to send an invoice and set payment terms directly from the app.

PayPal is going up against some formidable competition in the space, including Square, which is already well-accepted in the merchant community.

Meaningful services for merchants and consumers must be a key focus for players in the mobile payments space if they are to drive adoption.

PayPal certainly appears to have its sights on trying to meet users’ needs in these two segments. However, it is not the only player here and it remains to be seen who will win the wallets of consumers and merchants.

“It is all easy enough to try, which is why there are so many companies trying, but it is not easy to execute, which is why there are no winners yet.” Mr. Sievers said.