PayPal Renews Its Retail Push with Modern Mobile Tech

PayPal has long desired to be a force in brick-and-mortar payments, a strategy that's more vital than ever as the newly independent company pursues a course that distances it from its former owner, eBay.

PayPal's past efforts to extend beyond the Web were quickly outpaced by emerging technologies. Its 2006 product allowed consumers to purchase items by sending text messages with codes printed in retailers' ads; this system was rendered obsolete by the 2008 launch of the iPhone app store. Its 2013 pact with Discover seemed to hold more promise, but was based largely on distributing plastic PayPal debit cards and was slow to roll out to merchants.

But today's retail environment is much different from the one PayPal first tried to break into. Retailers' increasing reliance on mobile phones for marketing and sales gives PayPal a home-field advantage, said Dan Schulman, the company's president and CEO.

"Unlike our previous in-store efforts our merchant partners are driving the adoption of our open platform," Schulman said during a PayPal's third-quarter earnings conference call Wednesday evening. "The movement of in-app mobile payments to the in-store environment unleashes a tremendous new opportunity for us."

The omnichannel trend boosts PayPal's addressable market by almost ten times, he said. "Mobile provides a natural evolution for PayPal to move from the online and in app world to the in-store environment."

Merchants' needs have changed rapidly in recent years, and they now wish to provide a consistent shopping experience across digital and physical channels. PayPal's opportunity is to .  bridge the two environments, Schulman said. "We can focus on improving the entire commerce experience."

He spotlighted the deployment of PayPal’s One Touch at Macy's, mobile payments at Shell stations in the U.K. and an order-ahead system at Subway restaurants.

PayPal has accelerated its technology development following its spinoff from eBay. The payment company has used technology from its 2013 acquisition of Braintree to improve its offerings for third-party e-commerce developers, and to bring the social payments engine Venmo under the PayPal umbrella. More recently, PayPal purchased Chicago startup Modest to focus on in-app "buy buttons."

These acquisitions arm PayPal for heightened competition from myriad in-store mobile technology plays, including mobile wallets from Apple, Google and Samsung, as well as the pending merchant-led Merchant Customer Exchange, which just announced a partnership with Chase. Other competition comes from e-commerce payment enablers such as Stripe.

"This is a very pivotal time for PayPal, to be sure," said Jim Van Dyke, CEO and founder of Javelin Strategy & Research. PayPal faces more significant competition than before, Van Dyke said, though PayPal could also benefit from this environment.

"So many of these new mobile payment methods and players are new, and may stagnate or retrench after the initial buzz wears off, which could allow PayPal to then surge ahead with its solution," Van Dyke said.

One key advantage PayPal can promote is the inherent strength of the 'push payments' model, which offers strengths in both perceived and actual security for all market participants, Van Dyke said. "Others such as Visa are rapidly moving into this, which could validate it over time."

For  the quarter ending Sept. 30, PayPal's first as an independent company, it reported profits of $2.26 billion, compared to analyst projections of $2.28 billion, according to Bloomberg, which categorized PayPal's performance as "rocky."  PayPal earned $1.98 billion during the same quarter in 2014.

Schulman said the company's performance was strong, and PayPal maintained its forward earnings outlook. "We're pleased with our financial results," he said.