By Nick Holland
PayPal has done a stellar job of becoming an internationally recognized and trusted brand for online transactions. Now PayPal is strongly telegraphing their intentions to move to the physical domain as a means of purchasing goods and services in the same way that we currently use bank cards and cash. But how can they do this when they do not issue credit or debit cards?
The answer will be the combination of mobile devices and ubiquitous broadband connectivity. PayPal made some interesting announcements at their Developer X conference last week. Two are particularly noteworthy in the way they strongly telegraph PayPal’s intention to move to physical world payments.
- The first is the integration of Bling Nation’s contactless payment solution into the PayPal iPhone app. Bling Nation provides an RFID sticker that can be attached to mobile devices to conduct payments.
- The second announcement is that VeriFone is joining the PayPal developer ecosystem.
Anyone who is familiar with my research around contactless stickers will know that I am no fan of this technology. However, I can see value in offering stickers as a stepping stone to full blown integrated contactless technology based on Near Field Communications (NFC). The Bling Nation announcement is less about PayPal offering mobile payments now and more about offering mobile payments in the future. By working now to set themselves up as a payment vehicle in the physical world, they can begin to develop presence and once NFC handsets come to market on a wider scale in the next couple of years, they are positioned to offer virtual payment “cards” downloaded to mobile devices. This will be a significant game changer for the payments industry – the physical card form factor can be bypassed and as a result PayPal has the capability to compete head to head with card issuing banks such as Bank of America (BAC), Chase (JPM) and Wells Fargo (WFC) and by proxy the payment networks of Visa and MasterCard. However, PayPal will need a reciprocal arrangement on the merchant technology side for this one simple reason – you cannot swipe a phone.
This is why the VeriFone announcement is interesting. The next time you are visiting a convenience store or gas station, take a look at the card swipe terminal – there is a one in three chance or greater that it is made by VeriFone. Connecting the dots here, the relationship between PayPal and VeriFone signals a closer working relationship and the potential for PayPal to have a more integrated presence within point of sale terminals. With the development and proliferation of broadband connectivity to retail locations, the merchant is less constrained than they ever have been in choosing how and who should be processing their transactions. If PayPal can offer a viable, cheaper alternative to current payment card networks, then physical merchants have a strong case for accepting PayPal / Bling Nation.
This is not to say that card based payments will go the way of the DVD – far from it. The payments industry moves with gastropod agility and it will take a very, very long time for a newcomer to the physical world transactions to catch up with the global proliferation of Visa (V) and MasterCard (MA). Nonetheless, the times they are a-changing. As final proof that PayPal sees the future as mobile, a quote from Osama Bedier, the company’s vice president of platform, mobile and new ventures,
“Mobile commerce is the most significant change in retailing in the last century, and shopping will never be the same… PayPal is aggressively driving this change by redefining checkout on mobile devices for millions of consumers and businesses across the world.”