PayPal-Discover Pact Boosts Mobile Payments Momentum

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The mobile payments/digital wallet drama now unfolding is fascinating for three reasons: First, paying with your mobile phone is the most fundamental shift in retail commerce since the credit card was invented 60 years ago. Second, mobile payments are just starting to be adopted by consumers. Third, the field is wide-open. Leading companies from Silicon Valley to Wall Street, not to mention retail giants and telecom titans, are furiously jockeying for position.

Each major player brings a competitive advantage to this showdown, but so far not one has been able to strike more than a glancing blow. That changed Wednesday, with PayPal’s announcement of a partnership with financial services giant Discover to enable transactions at more than seven million retail locations nationwide. For online payments pioneer PayPal, this is an ambitious step to move offline into bricks-and-mortar transactions at the cash register.

“This is not technology for technology’s sake,” says PayPal spokesman Anuj Nayar. “This is about removing friction from the retail process and giving consumers more options.”

Word of the agreement sent shares of Discover and eBay (PayPal’s parent company) to 52-week-highs on Wednesday. PayPal’s pact follows a flurry of mobile payment moves. Last week news emerged that an imposing group of retailers including Walmart, Target and Best Buy plans to introduce a mobile payment option called Merchant Customer Exchange (MCX). The week before that, coffee giant Starbucks announced a deal with Twitter co-founder Jack Dorsey’s startup Square to enable mobile payments at 7,000 locations across the country.

Meanwhile, tech giant Google continues to ramp up its own digital wallet product, although adoption has been slow. Telecom giants AT&T, Verizon Wireless, and T-Mobile are working on their own mobile payments system, called Isis, which will begin local trials later this year in Salt Lake City and Austin, Texas.

MORE: Walmart, Target Challenge Google, Square as Mobile Payments Heat Up

The PayPal/Discover partnership, which will be rolled out next spring, is significant because it enables PayPal’s 50 million active users to make purchases anywhere Discover is accepted in the United States. Although Discover handles fewer transactions than credit-card industry leaders Visa, American Express, and MasterCard, the Discover penetration rate at retail merchants in the U.S. is 95%, according to the companies.

“We’re not talking about one retail chain,” says Nayar. “We’re talking about seven million retail locations nationwide.” Importantly, no additional hardware will be required of the consumer or the merchant. PayPal users will be able to make purchases using their cell-phone number (and a security pin code), which will access their cloud-based, digital wallet. PayPal will also issue its users a card connected to their account, which will keep track of things like loyalty points, coupons and promotions.

Wall Street greeted news of the tie-up with approval. Here’s a round-up of four tech analyst research notes.

  • “We view PayPal’s partnership with Discover as a meaningful driver of its offline [point-of-sale] product as it significantly broadens the company’s reach among physical retailers in the US,” wrote JPMorgan’s Doug Anmuth. “We continue to believe PayPal is well-positioned in offline payments and are incrementally more positive on shares as the deal accelerates PayPal’s offline acceptance faster than we had previously expected.”
  • “We think that virtually all catalysts associated with PayPal offline will be positive catalysts,” wrote Ben Schachter of Macquarie Securities. “As with today’s Discover announcement, there is only upside; if something doesn’t work, it will be chalked up to a learning experience.”
  • “This initiative further distances PayPal’s digital wallet ahead of other mobile payment platforms,” wrote R.W. Baird Equity Research analyst Colin Sebastian (via Reuters.) “PayPal continues to take measured and deliberate steps to extend its reach into the ‘bricks and mortar’ channel.”
  • “We view today’s announcement as an incremental positive for PayPal..[b]ut we are still unclear about this product’s core consumer use-case & incremental value proposition to merchants,” wrote Citigroup’s Mark Mahaney. “However, we think PayPal clearly has offline payments momentum here.”

Given how central retail transactions are to the U.S. economy, it’s easy to see why the concept of a cashless society has captured the imagination of so many titans of American industry. These commercial giants want to eliminate customer lines and reduce friction at the point of sale. More consumers in, faster, and then get out = higher sales.

Market analysis firm Juniper Research recently projected that mobile payments will increase four-fold to reach $1.3 trillion by 2017. But that will only account for 4% of total global retail sales, the group said, suggesting massive upside for cashless payments. Right now, the various players are circling one another, inking deals with partners, and conducting experimental trials. Wednesday’s announcement by PayPal should put the entire space on notice that the level of intensity is about to pick up.


This is an interesting piece. One could argue that the revolution actually started long before mobile wallet – physical cards have been less and less important ever since the first online credit card payment was made, but smartphones are certainly accelerating the process.

We predict that merchants will start using their phones as a point of sale before cardholders do, however. We've already had huge adoption of our iPhone/iPad payment gateway app.

Kind regards,

The eWAY Team


The mobile payment sector has a few hurdles to still overcome. Security and ease of implementation into existing POS systems. 

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Barbara Dizon
Barbara Dizon

My colleague at Velti shared her opinions about the Square/Starbucks deal ( and Google Wallet (, and we've all been in discussion about areas of improvements for mPayments to really take off. As more and more players enter the space touting their solutions and trying to win over customers, it might just end up being confusing to the consumer in the end. However, it will be interesting to see if the PayPal/Discover solution gains traction because they do have a huge user base and incredible retailer penetration.

Jody Olaes
Jody Olaes

It's all great and good until Paypal freezes your account and your digital wallet becomes a digital paperweight.  I personally will wait for Visa amp; Mastercard to come up with their solutions.


Visa's platform is currently in beta:

Interesting that in an article about credit cards amp; mobile payments, there was no mention of the mobile payment system that is being created by the world's largest CC company.

I'd love to see an in-depth comparison of Visa's, MasterCard's PayPass and American Express' Serve.


 yeah if you get involved with some monkey business paypal will freeze your account, i m sure visa or mastercard would do at least the same as well.


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