PayPal “Squared” Yields Triangle – And It’s Blue!

What's Next In Payments®
8:49 PM EST March 15th, 2012

So much for first-mover advantage. PayPal Here was unveiled today as not the first, not the second, and by many counts not even the third or even fourth small business solution designed to turn phones into POS terminals. And, based on what I’ve seen and heard so far, it was smart for them to wait. PayPal Here is a mash up of all of the “good” features of existing dongle-based solutions, and turbocharged with PayPal’s unique set of assets.

I spoke with Ed Eger, PayPal’s General Manager for North America, who gave me (and probably a dozen other of his closest friends) the scoop on PayPal Here. You can read and see all of the specifics here. Here’s my take on what he said.

It’s not about the dongle. In fact, Ed started the conversation that way. He was emphatic that PayPal Here is not really so much about a triangle-shaped dongle but rather an all in one solution for small businesses to better serve its customers. It is targeted to small merchants, casual sellers, services businesses and mobile field service personnel who either want to replace existing POS options with a single solution that gives them more options and/or wants to be able to accept and process electronic payments. And, the merchant gets instant access to those funds. That’s big for the small business. Really, really big and a huge differentiator. Bottom line, for small businesses, PayPal Here is about never losing a sale because a customer does not have a convenient (for them) way to pay.

It’s not about the swipe. PayPal Here enables merchants to accept just about every payment method under the sun: card, check, cash, and yes, even PayPal accounts. Ed didn’t say this, but I have a sneaky suspicion that PayPal will at some point offer inducements for consumers to pay that way (see point number 5). PayPal Here’s Local feature, in fact, seems to, nicely facilitate that. Phones registered with the app use geo-fencing (sound familiar?) to serve offers and enable consumers to check in and buy with that merchant – tagged to an account on file. So, think of it as Phones with Benefits (sorry, couldn’t resist). Any wagers on how many of those accounts will end up being PayPal accounts not tied to a card?

It’s about maximizing core assets. I was recently introduced to a “head to tail” restaurant dining trend for something else I am working on. This is a trend that is, yuk, about using every last bit of the, ahem, animal in preparing the meal. In the case of PayPal Here, it is about using every last bit of PayPal and eBay’s corporate assets to enrich the small business solution. Local (as described above) leverages WHERE, invoicing for mobile field personnel leverages its invoicing assets, the payment options that consumers might be presented when those invoices are presented leverages Bill me Later, the cash-back business debit card leverages the existing eBay merchant debit product, payments leverages the new digital wallet which leverages all of the offer/discovery and payment options via Milo, Red Laser, and naturally, the security and risk capabilities that are the PayPal core competency. And, I am sure that (a) I missed a few and (b) there will be more capabilities as time goes on. We didn’t talk about how Here will be distributed, but I’d bet money that it involves more than simply activating the existing eBay merchant base.

It’s about the business model. When I first saw the pricing scheme, I admit to being a little underwhelmed. Offering a 2.7% rate is only a teensy bit cheaper than the competition – so teensy it is almost not even worth mentioning, never mind rushing to sign on the dotted line. But, PayPal is promoting that when paired with the use of the PayPal Business Debit card product (which is linked to the merchant account and) the 1% cash back offered on purchases made using that card, brings the “effective merchant rate” down to 1.7%. In this environment of rapidly shrinking debit rewards programs, maybe this is an inducement for small business to consolidate other merchant accounts (if they have them) and really use the card. For PayPal, it is even better – they can make some money from deposits. But, it seems to me that PayPal Here just has to be competitive on the fee and not ridiculously competitive to get adoption. It is banking that merchants aren’t making their decision about small business solutions on the basis of fees alone, as long as they are close. PayPal Here is banking on the proposition that using a one-stop platform will make life easier as a small business – and enable those small businesses to make features available to its customers that will, in turn, allow them to serve them better and find more.

It’s about customer acquisition. As I said, Ed made it clear that PayPal Here’s name of the game is payments acceptance, and making sure that small businesses never lose a sale. That means that it was engineered out of the box so that PayPal is but one of the many payment options that people are able to use. Ed didn’t say this and I didn’t ask, but Here HAS to be a strategy to acquire new PayPal accounts. Yep, there are 106 million registered customers, worldwide, with a PayPal account, which is about 105,000,054 more than customers than have Square Card Case accounts. But, that’s about 200M less than the number of people walking around with Visa or Master Card plastic cards in their wallets (and that’s just in the US). Enabling small merchants to accept electronic payments using a blue triangle is nice and all that, but capturing that customer’s information via an opt in to get deals from small businesses (that, for example, are sweeter if you pay with PayPal); or presenting consumers with financing options at the point of sale using PayPal assets that incent them to use that option; or asking consumers to opt-in to Local and cardless payments tied to their PayPal account could be a very effective way grow their base quickly, and in a way that adds value to both merchants and consumers in the process. And that will seal the deal.

Being “fashionably late” to a party is a tried and true way of capturing all of the attention, scanning a filled room to see just where the most interesting conversation is happening, and using the anticipation of the arrival to build both hype and mystique. PayPal Here has certainly made its entrance, fashionably late with its small business electronic payments platform, and is certainly capturing the attention of the many existing players in the space. It will be fun to see how PayPal Here now works the room.

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