Ebay Using GSI Buy To Move In-Store
Retailers don't want another Amazon—they want cheaper payments in-store. That's what eBay seems to have figured out. On Monday (March 28), the online auctions giant announced that it's buying GSI Commerce, which provides E-Commerce services to 180 retailers, including Ralph Lauren, Toys"R"Us and Sports Authority. Most of those GSI clients already use eBay's PayPal online, so the plumbing is already in place. Now eBay just has to convince those retailers to use PayPal in-store, too.
That's not a done deal by any means. But PayPal has already said it plans to get its payment system into brick-and-mortar stores by the end of 2011, and earlier this month hired a former gift-card executive, Don Kingsborough, to make that happen. Getting 180 friendly retailers to sign on will make it much easier to break the plastic monopoly on in-store payments—something no other alternative payments system has been able to do.
Payments? Really? eBay wants the world to think of it not as a mini-Amazon but as a way for retailers to get out from under the thumb of Visa and MasterCard?
Consider: With eBay's deal to purchase GSI for $2.4 billion, the auction giant is taking great pains to show that it doesn't want to compete with big retailers the way Amazon does. eBay is spinning off GSI's actual retail businesses, including the licensed sports gear that GSI has sold since it was founded, along with the Rue La La and ShopRunner shopping services.
Shaking off anything that even looks like it might be competition for big retailers isn't coincidental. eBay knows Amazon has been trying to get big retailers on board for alternative payments for years. No one's biting. (Remember PayPhrase? Neither does anyone else.) A big part of the problem: Amazon is Amazon, the biggest online retailer and a de facto competitor. That's what eBay doesn't want to be.
Instead, the GSI deal gets eBay into the E-Commerce services business, providing everything from marketing to order fulfillment—and, oh yes, payments. Most of the 180 retailers that are already GSI clients are accepting PayPal. The back-end processes are already in place. In theory, that should make moving PayPal from online to in-store with these retailers much more palatable.Unlike most alternative payment schemes, PayPal won't have to sell these retailers on a speculative business model or convince banks and payment-card companies to play along. PayPal has customers and a decade-long track record. That helps. It also helps that eBay isn't a retail competitor, a collection of mobile operators, a phone maker or an operating system creator. Telco infighting and phone-maker dithering don't inspire confidence among retailers that are already comfortable with plastic.
But having the infrastructure and track record still only gets PayPal (and eBay) a third of the way to making a play for in-store payments this year. A second crucial piece is encouraging PayPal users to use PayPal in brick-and-mortar stores. The third—the piece in the middle—is the stores themselves.
How exactly will that work? PayPal won't talk specifics about its push into stores. Aside from hiring Kingsborough, all PayPal CEO Scott Thompson—a former Visa executive—will say is that the plan involves a mix of mobile and social. "We're going with a whole new experience that is different than the traditional card-like experience. That requires us to rebuild the whole infrastructure around point-of-sale," Thompson told Reuters a few weeks ago.
That sounds a lot like yet another POS technology to sit alongside magstripe swipers, contactless-card readers, Chip-and-PIN slots, 2D barcode scanners and NFC terminals. We're still waiting to hear which of those not-traditional-card approaches PayPal has in mind.
That brings us finally to Visa and MasterCard. Because right now most PayPal payments eventually go through a conventional payment card account, accepting PayPal just adds another middleman to every transaction. That won't encourage retailers to make the jump beyond plastic.
The only way for eBay to make PayPal truly worthwhile for retailers is to significantly cut the cost—and that means cutting Visa and MasterCard out of the loop.
That's not impossible. But if that's what eBay has in mind, its next big deal should be to buy a bank.