Home Depot's In-Store PayPal: Mobile Without The Mobile

Home Depot's trial to let shoppers pay in-store with PayPal—a program confirmed late last week, which is loosely related to PayPal's wallet—is interesting more for what it doesn't do than what it does. It's a baby-step program in two ways.

On the mobile front, it's the first retail trial of PayPal's mobile payment program and it doesn't use a mobile device at all. (OK, that's more an embryo step than a baby step.) On the payment front, this is also a test of Home Depot accepting a rectangular magstripe card that doesn't say MasterCard, Visa, American Express, Discover or Home Depot on it.

Let's start with the mobile part. When PayPal was demonstrating its wallet to retailers in November, it said that a major retailer was going to be testing the program and it would be announced by that retailer by the end of the year. That retailer was Home Depot. But it wasn't announced by the end of the year (it came out January 6), and it wasn't announced by that retailer (PayPal made the statement).

Much more importantly, it's pretty hard to even say that what Home Depot is trialing is the PayPal wallet that PayPal was demonstrating. What the $68-million chain is doing is agreeing to accept—eventually—a PayPal magstripe payment card. That's important—more on the payment potential in a moment—but it's certainly not mobile, in the NFC wireless sense.

The mobile component is the part of the demoed PayPal wallet designed for shoppers who don't have smartphones. It's really an alternative way to authenticate a PayPal purchase by asking for a mobile phone number (which, theoretically, might not even be a mobile phone) and a PIN.

This approach does allow for one PayPal wallet feature: the consumer is able to make a payment associated with one card and to later log into his PayPal account and change it to something else. That's a nice feature, but it shouldn't impact Home Depot at all. After the retailer gets paid by PayPal, it doesn't really care how PayPal gets paid.

(Related story: "Guess Google Wallet Experience: Great Interface, Hardly Any Customers")

By Home Depot limiting itself to two non-mobile elements of PayPal's mobile wallet, it not only bypasses any hardware changes to do the trial but it can find out how willing consumers are to use PayPal as in-store payment—in addition to learning whether those consumers are willing to reveal their mobile phone number as identification (plus a PIN).

To be precise, the trial that began last December at five Home Depot locations isn't actually showing Home Depot how many of its consumers are willing to use the card—which will be called an Access Card and is still being designed. For now, it's only finding out how many PayPal employees are willing to use the card, because they are the only ones being allowed to participate in the trial. (Let's hope, for PayPal's sake, that the percentage of employees using the PayPal card is really high. A low rate there would be really hard to explain.)

The initial plan is to open the program to Home Depot customers somewhere between April and June of this year.

One baffling detail is that PayPal's brief statement said the Home Depot pilot "involves a small number of PayPal employees," which PayPal later said was 400 employees. That's not really that small a number. It's not huge. Given that it is only five stores, though, it's not tiny. But this really depends on how those 400 employees are being used. On the low end of that range of activities is an interesting notion: What if PayPal is using its own salaried people overwhelmingly to act as beta testers? This would enable PayPal to have hundreds of beta testers who test the system in the exact ways IT wants them to and requires them to make detailed—and precisely formatted—reports back to headquarters. It would be an IT director's fantasy: hundreds of beta testers who follow all procedures and who can be fired if they don't.

If the Home Depot locations are chosen well, the PayPal employees could be mostly local to the stores, too.

On the other extreme, many of the employees could be assigned to performing active support for the trial. Even if most are being used in this way, that's hardly overkill. Consider the elements: it's Home Depot, which means attention to detail and quick problem resolution is important; it's the first attempt and will, therefore, be a place to bring others to visit; it's the first, so that will means tons of lessons learned that will be applicable to every other PayPal wallet effort; and it's reasonable that as it is opened to consumers, Home Depot will be disinclined to dedicate any staff to handhold customers. That duty will need to fall to the PayPal team.

One PayPal person said the teams will not necessarily be evenly distributed to each store, so some stores may be assigned fewer than 20 people. If you want staff there during all consumer-facing shifts, the number looks even less large.

The initial plan is for this to be opened.

Even though the Home Depot trial does not require a phone, it acts as a nice sales tool. Customers who do opt to use their phone number and PIN will be able to use them to interact with PayPal's wallet. It's not unreasonable to think that some of those customers will take the next step and download the PayPal wallet to a smartphone.

There's also a very Home Depot-specific payment effort at play here. Accepting PayPal payments could be a test to see whether the retailer could eventually get out of the grip of Visa and MasterCard.

It's true today that most PayPal transactions are backed up a payment card associated with Visa or MasterCard, but it's not universal. With PayPal acting as a buffer, Home Depot could slowly put some distance in its Visa relationship. Merely the fact that it could do such a thing might be sufficient to pressure Visa to negotiate more reasonably.

This is all one of the subtexts behind Google Wallet, PayPal's wallet, Square and even ISIS. Square explicitly is setting itself up as the merchant of record with the various card brands. This means a retailer could—under very specific circumstances, such as only accepting Square Card Case, cash or checks—avoid PCI requirements and, therefore, also avoid the interactions with the card brands. The same could presumably be done by Google Wallet, PayPal's wallet and others.

Baby steps can be very appropriate in retail. After all, these mobile wallets will likely soon grow up—and then the real joy starts.