Toys"R"Us Trial Shows Brilliance—And Folly—Of eBay

Toys "R" Us is backing into in-store mobile payments by serving as the guinea pig for an interesting eBay trial. Smartphone-equipped toy shoppers will be able to purchase any Toys "R" Us product by scanning the barcode with RedLaser, now owned by eBay, with the mobile app fully processing the transaction. There's a huge catch, though: Any payment form other than eBay's PayPal need not apply.

eBay has been coy (a nicer way of saying "misleading") about its payment limitation. On November 3, eBay posted a description of its Toys "R" Us trial on its blog. In that piece, eBay wrote that, with the Toys "R" Us trial, "you can even pay with PayPal." It slipped company's execs' minds to have said, "you can only pay with PayPal." (We can see the commercials now: "During the Toys "R" Us trial, 100 percent of consumers chose to pay with PayPal. Amazing how popular a choice it is when consumers have no alternative.")

The shortsighted payment limitations aside, this Toys "R" Us trial is quite clever and it showcases what eBay can do in the mobile space. Consistent with the mobile wallet pitch PayPal itself is making to retailers, parent company eBay's trial showcases the strength of being platform-agnostic. This trial can work just as well on an iPhone or an Android. (Note: eBay's information seems contradictory on how multi-platform it will initially be, however.) On the flip side, Google Wallet can work just as well on Visa and MasterCard.

Therein lies the frustration of the Toys "R" Us trial. If eBay had just permitted multiple payment sources—and not tried to leverage the wallet to boost PayPal fees—this app could have forced some serious mobile shakeup.

This is how eBay's blog post described the Toys "R" Us trial: "If you scan or search for a toy, RedLaser will bring back its standard set of results, but if Toys "R" Us has the item, you'll be able to buy the item directly from within the app, whether it's available through or one of their local stores. You can even pay with PayPal. This means we're not just handing off the customer to a merchant, but closing the loop on the whole transaction."

In other words, this app would be impressive were it merely a way for people inside one of the 875 Toys "R" Us stores. To effortlessly move from scanning a barcode for price comparison to being able to complete the transaction on the phone—no need for POS checkout at all—is powerful and puts the chain way beyond other retail trials. But this app will also work at Wal-Mart, Target or in some obscure mom-and-pop store on the boardwalk. Anywhere the toy exists becomes a sales showroom for Toys "R" Us. eBay is promising to announce other retailers soon. For Toys "R" Us, though, the fewer toy-selling retailers on the list, the better.

There are lots of questions raised by this app—which we'll address in a moment—but the power of the idea is stunning. And the shortsightedness of whoever approved limiting the payment choices to PayPal is equally stunning. Given the domination in the payment space of the combination of Visa, MasterCard and American Express, the idea to exclude any customers who happen to not have—or who don't want to use—PayPal is mind-boggling.Ironically, Toys "R" Us accepts Visa, MasterCard, Amex and Discover, plus BillMeLater and PayPal, but Toys "R" Us' site stresses that "third-part forms of payment [which includes PayPal] cannot be used for all purchases." Unlike the way that eBay is treating Visa customers, at least Toys "R" Us accepts PayPal for some transactions.

Back to the app. It's not clear how the app would work—as a practical matter—in the field. The easiest route would be for the app to have the product shipped to the customer's home or office address. But that ignores strong psychological realities. The consumer is standing in a store and is holding the desired product. In this case, a toy. They're touching the product. That consumer could take it home in moments by walking over to the POS. Saying that it will be delivered within a week doesn't sound very compelling, compared with instant gratification. It's not logical; it's emotional. And few places are emotions more in play with a product purchase than with holiday toys.

The better way to complete that purchase is to truly complete the transaction and to issue a digital receipt, enabling the customer to walk out of the store with the item. But that requires the store to have extensive loss-prevention mechanisms in place, which few have. The ability for the app to be used anywhere sharply decreases the percentage of places where immediate pickup will be an option.

eBay officially embraces both approaches, according to a document eBay sent to reporters. "Now you can find the best prices and purchase directly from within the app for home delivery or local in-store pickup from select stores," it said.

As for the platforms, this gets interesting. PayPal has been pushing itself as entirely platform-agnostic, with the eBay-owned PayPal Wallet supporting not only all of the smartphone platforms (including iPhone, Android and BlackBerry) but many non-smartphone platforms, as well, although it admits that much of its functionality won't work beyond smartphones. eBay-owned RedLaser, though, is a smartphone-only app and it even excludes BlackBerry (these days, who doesn't?).

This new capability—the one that Toys "R" Us is trialing—is seemingly only available with phones using the free RedLaser 3.0. But that 3.0 version seems to have also excluded Android, with eBay saying that 3.0 is "available for free on iPhone, iPod Touch or in the iTunes App store."

This is a very impressive move by eBay, and it is an important advancement in mobile payments. If only eBay hadn't shot itself in the SIM card with its PayPal-only policy, it would have been a truly beautiful thing.