PayPal Inc. will be issuing cards and working with acquirers as it moves toward its goal of ubiquity in the payments marketplace, Don Kingsborough, PayPal Vice President of Retail and Prepaid Products, said in an investor conference call about PayPal's new alliance with Discover Financial Services. PayPal's digital wallet is expected to be available at more than 7 million U.S. merchant locations that accept Discover cards by the second quarter of 2013.
Diane Offereins, President of Discover Payment Services, called the PayPal deal "a major industry milestone" that will "help shape the emerging payments landscape by bringing together an established direct banking and payments company with a leading commerce enabler to create an alternative payments option for consumers at the point of sale. This initiative will result in real change and innovation for the industry by bringing new technologies to the point of sale that benefit merchants and PayPal customers."
Kingsborough added that the partnership will create new benefits for Discover merchants without requiring them to install new hardware or software. "This relationship will deliver a truly seamless digital wallet, available most places consumers shop offline, which offers the speed, simplicity and security already enjoyed by 113 million active PayPal customers online," he said.
According to Kingsborough, PayPal/Discover transactions will not be considered debit payments, nor will merchants be required to have a PIN pad for swiped transactions. Regarding PayPal's pricing, Kingsborough said PayPal has been "in conversation with the Fed about debit interchange."
A leader in the mobile wallet arena, Discover is participating in the Isis wallet initiative, as well as in Google Inc.'s mobile wallet venture, which the search engine just transitioned to a cloud-based payment solution.
Offereins said Discover intends to shape the commerce landscape through partnerships. "We are focused on enabling solutions and partnerships spanning a spectrum of emerging payments, including mobile, chip, alternative and prepaid, and have gained significant momentum with this approach," she said. "We're focused on leveraging our network to support nontraditional payments," she said. "As commerce evolves, creating new channels and environments, our network also needs to adapt."
PayPal has partnerships with 16 national retailers, including its recent teaming with Starbucks Corp. In less than a year, the company has attached itself to the POS at more than 3,000 U.S. retailers, launched a successful mobile POS system for small businesses called PayPal Here and entered deals to integrate PayPal with the POS equipment of the major U.S. terminal manufacturers.
During the investor conference call about the Discover deal, Kingsborough said that in addition to the 7 million merchant locations Discover brings to PayPal, the card company also provides access to its relationships with 135 acquirers.
"Discover acts as an acquirer for 1,500 large merchants," Kingsborough stated. "We plan to roll out at these merchants early and the balance in the coming months after that. These [Discover] merchants are already embedded with technology in existence, or will be by the beginning of the year."
To enroll all Discover merchants by the second quarter of 2013, PayPal is going to need help from acquirers. The company will work with acquirers to continue building online and offline networks, and acquirers will be compensated because they have a role in the value chain, Kingsborough noted. "You do have to get acquirers to cooperate with you," he said. "We are on a path and will continue to be on a path of getting full cooperation for all the acquirers." He added that the company will maintain the same 2.75 percent processing fees it has advertised.
Kingsborough said PayPal intends to extend its online payment program to offline retailers using mobile as the "connecting tissue"; he sees card issuing as a "default" that will become less important as the company evolves.
"To integrate into the life of the consumer you have to be wherever consumers want to shop," he said. "That's what accelerates adoption. Issuing cards enables the integration into the consumer's life, and that enables new technologies into their life." The card is "an extension of the existing network into the physical world," he said. "This is not a transaction like any card transaction you've ever had." The card acts as a token used in the payment mix PayPal has built in the cloud, he added.
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