Traditional credit card companies have done their best to capitalize on the exponential growth in ecommerce. Using their investment in security and relying on their deep financial reserves to offset the cost of potential fraud, they have made the transition in a relatively seamless fashion.
Now PayPal is returning the favor. The online payments system has inked a deal with Discover, the also-ran credit card company formerly owned by Sears, enabling borrowers to use their PayPal credit offline. And they are focusing on the dramatic rise in mobile payments. This makes good strategic sense for both PayPal and Discover. PP gets access to a much broader market and Discover gets a much-needed shot of online adrenaline to bolster its lagging competitive fortunes versus American Express, Visa and MasterCard.
The danger is that it is enabling consumers to spend more at a time of deep economic dislocation. Recent data have confirmed that for the majority of Americans, employment is down, incomes are down, net worth is down - and membership in the middle class is down over 10%. One of the only bright spots in the economy is that people have been forced by these circumstances to cut back on household debt - and have done so more than most economists believed was possible. Handing these cash-strapped consumers another inducement to spend does not seem like a great idea. The companies involved were not elected to solve the nation's problems but with the new consumer finance watchdog agency up and running, preying on the vulnerable has become a less certain money-making tactic.
Hopefully this deal will simply increase the efficiency of funds flows for consumers who can afford them. It may also enhance the speed at which online and tangible markets converge. And that is both a strategic necessity and benefit for commerce.JL
Andrew Johnson and Robin Sidel report in the Wall Street Journal:
Consumers are getting yet another payment choice at the cash register.
PayPal, the online-payment unit of eBay Inc. announced a deal with Discover Financial Services that will allow shoppers to tap into their PayPal accounts.
The move pits PayPal, which has built a booming business over the past decade largely by facilitating online payments for consumers and small businesses, against the three giants of the credit-card industry.
The deal is the latest twist in the payments industry, where companies are scrambling to find new ways to make money by devising a more-convenient alternative to the cash and checks on which many consumers depend.
Banks and payment companies are already pouring billions of dollars into technology that transforms the mobile phone into a payment device.
Wednesday's move is expected to intensify PayPal's competition with traditional payment networks run by Visa Inc., American Express Co. and MasterCard Inc.
Discover, which competes with those companies, expects to pick up more transaction volume by processing the payments for PayPal.
PayPal has signed up 16 national merchants, including Home Depot Inc., Abercrombie & Fitch Co., Barnes & Noble Inc. and Office Depot Inc. The service is live in about 3,000 locations, said Anuj Nayar, a PayPal spokesman.
The 14-year-old company, based in San Jose, Calif., has more than 50 million active U.S. customers who fund their PayPal accounts through existing debit cards, credit cards or checking accounts.
Customers will be able to access their PayPal accounts at the cash register by entering a mobile-phone number and personal identification number on the retailer's payment terminal rather than swiping a card or using cash.
PayPal also is providing customers with physical cards that can be used at merchants that don't have PIN-enabled payment terminals. Those transactions will still tap into the customer's PayPal account.
What isn't clear is whether customers want or need another payment choice.
"Although the deal improves PayPal's acceptance, PayPal still faces challenges in convincing its online customers to use PayPal offline in our view, especially given a lack of marginal benefit beyond convenience," wrote Bryan Keane, an analyst at Deutsche Bank Securities Inc., in a research note.
Discover expects that the seven million merchants that accept its cards will be able to accept PayPal in the second quarter of next year, said Diane Offereins, president of payment services for the Riverwoods, Ill., company.
Discover merchants will have the option of accepting PayPal, and those choosing to do so will be able to use existing point-of-sale devices for those transactions, she said.
Merchants who sign on will pay processing fees to PayPal for any transaction made with the service, versus fees set by Visa, MasterCard and other payment networks for traditional card transactions.
PayPal says its fees for in-store purchases are on par with the card networks' rates.
The stocks of eBay and Discover rose on views that the new service will give the companies access to new customers and more transactions.
EBay shares rose $1.15, or 2.5%, to $47 in 4 p.m. trading on the Nasdaq Stock Market. Shares of Discover gained $1.43, or 3.9%, to $38.43 on the New York Stock Exchange.
Wednesday's deal is the latest step in the evolution of 14-year-old PayPal, which was acquired by eBay in 2002 and is best known as the online payment device used by the online auction site.
PayPal's contribution to eBay has been growing. Revenue from PayPal and other payments rose 26% in the second quarter, compared with a 9% increase in sales at eBay.com. The company now represents 40% of eBay's revenue.
The payment service also got a boost in June when financial-services company Keefe, Bruyette & Woods Inc. launched coverage of eBay due to the growing importance of PayPal.
Ms. Offereins declined to say how much additional transaction volume the deal could generate for Discover, which is the smallest of the four U.S. card networks based on volume. Discover's U.S. credit-card transactions totaled $63.24 billion in the first six months of 2012, according to the Nilson Report, a payments-industry newsletter based in Carpenteria, Calif.
By comparison, Visa's U.S. credit-card transactions totaled $490.24 billion, while $288.3 billion in transactions were made with American Express's U.S. credit cards and MasterCard handled $273.3 billion.
0 comments:
Post a Comment