PayPal Tries For Hands-Free In-Store Payments With Beacon

PayPal (NASDAQ:EBAY) is still looking for ways to jump-start its in-store mobile payments system. The latest try is something it's calling PayPal Beacon, a USB device that will use low-power Bluetooth signals to connect with customers' phones, All Things D reported on Tuesday (Sept. 10).

The idea is simple: The merchant plugs the small, prism-shaped device into his retail store's point-of-sale computer. The device connects with the point-of-sale software (presuming it's compatible with PayPal's mobile app), and it automatically recognize customers' phones when they walk into the store. It also lets customers pay (using PayPal, of course) without having to pull out their phones or wallets—as PayPal puts it, "no cash, cards, taps or signatures required—all hands free."

The process does require the customer to tell the cashier that he or she wants to use the hands-free system, and it's the cashier who triggers the process. That's likely to lead to two potential roadblocks for the Beacon, even if merchants actually decide to use it.

First problem: If a customer is double-charged, the merchant will be to blame. Same thing if the wrong customer is charged, or if the cashier fumbles the transaction in some other way. It's worth keeping in mind that many cashiers routinely have trouble with contactless and chip-and-PIN plastic payment cards, and phone-based mobile wallets are completely baffling to them. That's a training problem, but retailers have been notoriously bad at training cashiers to support anything but mag-striped plastic.

Second problem: All the potential security headaches of connecting something new to a store's point-of-sale system. PayPal knows about the PCI requirements that merchants who accept Visa and MasterCard are required to follow. But PayPal also knows it's asking merchants to plug a PCI-unapproved device directly into their payment systems. That's not saying anything will go wrong. But when it does, it's the merchant who will take the penalty, not PayPal.

Just those two problems may be enough to limit the number of stores willing to try Beacon. That's actually not a bad thing—it will give PayPal more time to work out as many bugs as it can. Besides, PayPal isn't planning to even try for a broad rollout until sometime next year.

For more:

- See this All Things D story
- See this PaymentsSource story

Related stories:

PayPal Offers Free Card Processing, But For Who?
PayPal's In-Store Payments Go Live On Discover's Network April 19
PayPal's In-Store Payments Scaring Wall Street

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