"I was with a large merchant last week who described NFC as Not For Commerce," Donahoe said during a quarterly earnings call. That is "simply because when you're a large merchant and you have 500 stores and 14 checkout lanes per store, you want zero friction at checkout and point of sale. And they're not going to allow anything that has friction. No proprietary systems."
Beyond proprietary hardware and software, the lack of industry standards will also be a big help to PayPal, he said.
"The people who are really going to drive this at the end of the day are going to be the merchants, in particular, the large-scale merchants, who drive 80 percent of the point of sale spend. That's drugs, that's clothing," he told investors. "While I think there will be experimentation with NFC, I don't think you're going to see widespread adoption of NFC in the large merchants for quite a while, until there are standards."
Earlier in the call, Donahoe defined "quite a while" as potentially being until about 2016. "With PayPal, we've had merchants reach out to us quite aggressively and say they want us to bring PayPal into the point of sale. We see it as an incremental opportunity and a fairly significant incremental opportunity that will play out over the next three to five years," he said.
Donahoe specifically pledged—without mentioning any names or any other specifics—that PayPal will be on trial "with a major U.S. retailer" by the end of 2011 and will have "as many as 20 national retailers" in trials next year.
The mobile-payment players—eBay/PayPal included—are being very casual with terms like proprietary, which could also be applied to PayPal. The friction Donahoe referenced is inevitable with any new technology, and it's hardly likely that PayPal-powered POS efforts would be any more friction-free than its rivals.And with the card brands more than willing to accept—although certainly not embrace—almost all of the key efforts, an argument could be made that that will provide the comfort-food quality NFC on its own lacks.
All of that said, PayPal really is the most traditional payment player in the space, certainly less disruptional than Google, Apple, ISIS or Square. But it's also likely to be the least feature-rich of the group. With all of the excitement of mobile payment, will boring win the day?
The complicating factor is consumers. Major chains would certainly prefer to keep things as comfortable as possible, but with Google's Android devices and Apple—plus perhaps Square—pushing hard on the consumer side, will that force the retail hand? What effectively killed standalone contactless was not—initially, at least—retailer apathy. It was consumer apathy.
If consumers come into the store wanting to use those other devices, what retailer would resist? This might be one of those technology decisions that really will be dictated by customer demand. If so, end-user campaigns from Google and Apple may override PayPal's comfort-food campaign.
PayPal's in-store payment situation has two distinct flavors. When PayPal refers to mobile payment today, it's referring to what is essentially its veteran E-Commerce payment mechanism tweaked ever-so-slightly for mobile.
It's an in-store mobile payment only in the most narrow of terms. It's mobile to the degree that almost any E-Commerce site can be viewed on mobile. If consumers go to a major E-Commerce site and pay for a product with PayPal, that's E-Commerce. If they happen to do it while standing in a Best Buy, it's technically in-store. PayPal also has a mobile app, but it's just a shorthand version of its E-Commerce payment functionality. It generates a lot of revenue for eBay, though.
The in-store payment app being discussed for the end of the year and next year would be a direct POS interaction capability, but PayPal has said almost nothing about the nature of that POS interaction.
Given the ridiculing of NFC, the most likely scenario is a POS scan of a mobile-displayed barcode, similar to what Starbucks and Target have been doing with their mobile applications. eBay's recent purchase of Zong is another possible approach. That involved giving the POS associate a mobile-phone number and the sale is then confirmed with a text back to the phone.