PayPal's In-Store Mobile Pitch Doesn't Seem To Know Problems Even Exist

PayPal's not-quite-a-mobile-payments-announcement on September 14 was a nearly perfect primer on how not to convince retailers you're a serious player in in-store payments: Trot out a collection of rebranded (but unintegrated) technologies—everything from your own mag-stripe cards to self-checkout by phone to yet another nonstandard use of PIN pads—and then demo them without any hint that you recognize the unsolved problems they carry, never mind having solutions.

The problem isn't just that PayPal has apparently done nothing to pull together its pile of recently acquired technologies into a suite of payment services. It's that each of these services has real problems that have dogged retailers' efforts at mobile payments for years. And astonishingly, PayPal doesn't seem to have solved any of them.

Consider PayPal's answer to NFC-equipped phones (what Google Wallet and ISIS and, if it ever materializes, Apple's mobile-payment system all use). No NFC for us, PayPal says: Just type your phone number and a PIN into a countertop PIN pad to pay, and choose either a paper receipt or an E-receipt that's sent to your phone.

What's wrong with this picture? Yes, it's less convenient than a card swipe or contactless tap, more prone to error and apparently more at risk for fraud, because anyone looking over the customer's shoulder can capture all the information needed to make a purchase on the account. (One of PayPal's recent mobile-payment acquisitions is Zong, whose system also sent a message to the customer's phone to confirm the payment. Amazingly, if that's part of the offering, it's nowhere in the demo.)

But the real problem is the biggest hurdle faced by any new payment approach: This PayPal in-store play requires changing the retailer's back-end software, which retailers understandably hate touching.

Google Wallet and ISIS will require back-end changes, too, along with new PIN pads. But they're not claiming, as PayPal is, that they won't require new infrastructure. Yes, back-end software is infrastructure.Fortunately for PayPal, it has other—apparently completely independent—mobile-payment ideas. Another demo has a customer scanning items at the grocery store as she shops, paying online and then waving her E-receipt at the checkout cashier as she walks out. What could be simpler? OK, what could be simpler once you've solved the loss-prevention problems associated with completely unsupervised self-checkout? If PayPal's solution is an LP employee at the door item-checking every customer without a printed receipt, this isn't exactly an advance.

Another PayPal offering is conventional mag-stripe cards with PINs. That seems like the least problematic one—every retailer has card-swipe terminals (even though Visa would love to get rid of them as quickly as possible), and everyone knows how to use them. But even PayPal's entry in the Visa-wannabe category cuts security by removing the raised number from the card. That means no thief can copy the account number off the card, but no cashier can confirm that the mag-stripe matches the number physically embossed on the card.

Yet another PayPal pitch: Let customers shop in-store but use an app to scan barcodes to put items in a shopping cart on the retailer's Web site and then pay online (with PayPal, of course) and have the merchandise delivered to their home. That offers all the advantages of seeing, touching and comparing merchandise in the store but with what's unquestionably mobile payment.

Of course, any mobile customer can already look around a store and then buy online. The problem for retailers is figuring out a way to keep in-store customers from deciding on an item and then pulling out their phones and buying it from some other retailer online, so that the store the customer is standing in actually loses the sale because of mobile. There's no sign that PayPal has solved that problem either.

And although PayPal insists it's not doing coupons or promotions, just payments, it's also offering up Foursquare-and-Shopkick-style check-ins that ping a customer who is near a store and offer coupons and credits. Those certainly have potential CRM appeal for retailers. But there's no sign that PayPal has solved the geolocation problems of automatically identifying a customer's location.

None of these problems should be insurmountable for PayPal. Or maybe they will be—there are reasons why the mobile-payment start-ups PayPal bought didn't set the in-store world afire on their own. PayPal has the money and the payment infrastructure to at least mount a credible challenge to the payment-card brands. If anyone can kick the legs out from under interchange, it's PayPal. That's the most appealing thing about what PayPal is pushing.

But it's nowhere nearly enough yet to make PayPal a meaningful mobile player.

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