PayPal's Hands-Free Checkout: What Could Go Wrong?

We know PayPal is probably the most committed U.S. mobile payments player whose name isn't Starbucks (NASDAQ:SBUX), so we're trying not to be cynical about PayPal Beacon, the hands-free in-store payment system that the eBay subsidiary announced on Monday (Sept. 9). But, well, it's tempting. It works like this: The merchant plugs in a PayPal-designed dongle that connects with the POS. The dongle uses low-energy Bluetooth to communicate with any properly equipped smartphones that enter the store and have PayPal's app running. At checkout time, the customer announces he wants to pay with PayPal and his phone is detected, his PayPal account is debited, and he walks out the door without touching wallet or phone.

What would make us cynical about that? Well, there's the PCI impact of connecting a Bluetooth network to POS. The ability to sniff that network. The challenge of being sure whose phone to debit, if the system gets popular enough. Potential double-charging. Interference from lots of other Bluetooth signals. Cashier error that no one can immediately detect. Cashier shenanigans that no one can immediately detect. What about this wouldn't make us cynical? It's a nice idea, and maybe it will even work someday. But if this is PayPal's current best idea for replacing traditional plastic cards, those cards look like they have a long life ahead of them.

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