PayPal Puts Another Nail In NFC With Beacon Launch

CEO, Market Platform Dynamics
9:40 PM EDT September 9th, 2013

Whoa baby, the mobile payments landscape just got a whole lot more interesting.

PayPal launched something yesterday called PayPal Beacon. The media has described Beacon as a cool-looking triangle-shaped hardware device that plugs into any power source and acts as an in-store GPS system using Bluetooth Low Energy (BLE). A Beacon-enabled merchant is able to “check in” any customer who has entered her store, downloaded the PayPal app and given her permission to that merchant to be checked in. The customer will know they have been checked in since her phone will vibrate or emit a sound. That merchant can then serve up any number of convenient commerce offers tied to a hands-free, swipe-less payment experience. Use cases cited include refilling prescriptions automatically, having them ready and paid for at pick up at the pharmacy and serving offers targeted to where consumers happen to be in the store – $2.00 off mascara in the beauty aisle, 50 percent off flip flops in the fun-in-the-sun section, for instance. The hands-free payment experience authenticates using a picture of the PayPal customer at checkout. Currently, Beacon is compatible with integrated systems such as Leaf, ShopKeep, Micros, and many more.

BLE, as the name implies, is a low-energy technology, so the Beacon hardware can hold a charge for a very long time and it’s cheap to buy and operate. And, unlike that other three-letter technology acronym, it doesn’t require contact to transmit. And since 100 percent of smartphones have Bluetooth, solutions that leverage BLE are compatible with 100 percent of smartphones, at least in theory.

As I said, whoa, baby.

But, Beacon is a whole lot more than a hardware play. It is a platform play. Beacon launched today with a recruitment pitch to be one of the first 100 developers to play around with its API and go crazy trying to think of other use cases that, well PayPal customers might go crazy over too. And, since PayPal can dangle more than 132 million consumers in front of those developers, it probably won’t take long for those 100 slots to disappear. Then, imagine the merchant reaction to the cool use cases that may come out of that effort. Cool use case + the potential for 132 million customers to beat a path to a merchant storefront who has a great experience with the PayPal app and who then tells their friends whose enthusiasm for cool apps attract more developers whose apps attract more merchants – well you get the picture. Platforms enabling commerce innovation wrapped around payments. That’s the ticket to ignition and well, something that spells g-a-m-e-c-h-a-n-g-e-r in mobile commerce.

And, Beacon comes on the heels of the launch of PayPal’s new consumer app last week, which, among other things really improves the ability for consumers to decide which funding source they want to use at a particular merchant before they pay. That was one of the real points of friction in the PayPal experience which they have solved for in its new version, in addition to adding lots of new features.

PayPal’s announcement also comes on the eve of Apple’s rumored launch of iOS 7 which includes its own version of Beacon, iBeacon to be more precise. What a coincidence! iBeacon is also powered by BLE and enabled on any device operating iOS 7, including consumers own devices. Reports suggest that a powerful use case for iBeacon is creating networks of devices that can send and receive iBeacon messages, basically creating a massive network of hundreds of millions of devices that can communicate with each other. Apple sells iBeacon devices in packets and developers already claim to have established an iBeacon enabled ad network capable of serving ads to consumers in stores. There is a lot of speculation around how iBeacon technology will work with Passbook, for the obvious reasons. I guess we’ll see today just what Apple has up its iBeacon sleeve.

But, back to Beacon. There are many things yet to know about Beacon, like how it will play in larger merchant environments with more complex backend systems and existing POS infrastructure. My sense is that this announcement will immediately cause every single company who is still thinking about NFC to finally scrap those plans and for those same companies to task their teams with figuring out how to deploy a version of BLE-enabled technology pronto. The terminal manufacturers who are already feeling the heat given the waning prospects of EMV and NFC in the U.S. will have a few more sleepless nights I suppose too. It’s becoming increasingly obvious that devices – and the standards that those devices were designed to lock payments providers into like NFC and EMV – won’t matter a hill of beans in our mobile-enabled future.

Perhaps the most interesting aspect of this announcement is something that I have been mulling over for a while – and that is the advantage that accrues to those who have a critical mass of digital accounts. Think about it. PayPal and Beacon can instantly attract merchants and developers because of the 132+ million consumer accounts that they control right now. And, now with the prospect of Beacon and its new app, PayPal is creating a value proposition to expand and could rather quickly. Apple has that same advantage and so do some smaller players. Never say never in this payments game, but having to get merchants and consumers both on board takes time and is a slog – and in the case of the incumbent networks, it requires that a lot of people say yes who have said no so far, like the merchants. Banking the future on devices and NFC as the standard versus the cloud and the notion of any connected device to any connected device via the cloud has cost them a few years of the running head start that others now have.

Now, I don’t want to say that this is a slam-dunk by any means. PayPal still has to persuade consumers to install the app even though merchants don’t have Beacons yet. And, they have to persuade enough merchants to install Beacons even though there aren’t a lot of PayPal-enabled consumers walking through their doors. And, of course all those 132 million account holders aren’t in the U.S. either. Yup, PayPal despite its advantages still has the old payments chicken-and-egg problem But, my guess is if they get a few big merchants to follow the Beacon and prove that the app + Beacon combo delivers a great experience to consumers, it could take off pretty quickly.

And hey, we’re far from “game over,” in fact, we’re just starting the first quarter of the most exciting game in payments.

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