PYMNTS Goes To PayPal As The Commerce Giant Shatters Q4 Predictions

What's Next In Payments®
6:08 AM EDT January 17th, 2013

By Ben Carsley, Writer/Editor (@BC_PYMNTS)

It’s been a pretty busy week for PayPal.

On Monday, the company announced 23 new retail partners, plus a special testing feature with Jamba Juice. On Tuesday, it announced integration with NCR. And on Wednesday, its parent company, eBay, announced its Q4 earnings in the immediate aftermath of one of the biggest retail tradeshows of the year, NRF 2013.

After my trip to NRF, I accepted an invitation from PayPal to check out their Commerce Innovation Center in New York City to sit down for an exclusive interview with Anuj Nayar, senior director, global communications, and discuss all of PayPal’s latest moves, their payments strategy moving forward, and eBay’s most recent earnings report.

Although this was my first time meeting Nayar, I came in with a basic understanding of how he views PayPal’s offline operations thanks to a blog piece he wrote back in October titled, “PayPal is not a mobile wallet company.”

His main point in that piece was that PayPal should not be “lumped in” with other companies who were using a single technology in an attempt to change commerce, and that’s a sentiment he echoed yesterday.

“Our [wallet] isn’t a one-trick pony: it’s a very in-depth commerce platform that you can use,” Nayar said.

“A lot of the companies that are doing this have a technology, and they’re saying it’s the silver bullet to fix all of their retailer problems. Retailers know that’s BS, because the retailers are smart enough to say, ‘if there was one solution that would solve all of my problems, I’d have it. What I do know is I have a fundamental problem, which is I’m being attacked from all sides.’”

Those “attacks” are coming from online retailers, who use brick-and-mortar competitors as showrooms, and then encourage actual commerce to take place online. They’re coming from traditional competitors who are able to adjust prices and push offers in real time. Commerce isn’t just changing for consumers: it’s changing for retailers as well…

…Which made my tour of PayPal’s Commerce Innovation Center all the more interesting. The center was comprised of a mix of solutions that are live, in beta or still in development, and of which I saw plenty of variance in viability and usefulness, too.

One of the more farfetched ideas: an Internet-enabled television set that would double as an eCommerce platform, with the accompanying logic appearing to be, “if it can connect to the web, you can sell on it.”

A more interesting idea that can’t quite be implemented yet: an image recognition mobile app that allows consumers to take a picture of any item and receive information instantly about price, design, availability and more. According to the guides helping to give the tour of the center, such technology has about a 60 percent success rate when capturing an image through glass or in the dark and about an 80 percent success rate when able to obtain a high-quality photo: good, but not ready for mainstream use yet.

And finally, I was also shown a few ideas that made me wonder how they haven’t seen more adoption yet. The best example: a QR code system designed for stadium or arena use that would allow consumers to scan, access a menu, place an order and schedule a delivery to their seat without every getting up or missing a second of their game or event.

“Once the snow ball starts, and you as a consumer start to see that, it starts to go from, ‘isn’t it cool that this place does that?’ to ‘oh my god, I can’t believe that this place doesn’t,’” Nayar said.

Another offering with huge potential: a merchant-facing tablet app that gives store workers real time access to data about consumers’ purchase histories, suggests items to upsell, allows for checkout and more.

Perhaps most interestingly, PayPal noted that it was able to use such an app to give consumers payment installment options, essentially allowing small businesses to extend credit at no risk to their own operations for the first time.

It was a truly interesting look at how PayPal views the commerce revolution we’re seeing right now, and prompted me to ask Nayar exactly how PayPal views itself. Is it the fifth major U.S. network? Is it a mobile payments company? Is it a bank?

According to Nayar: yes and no to all of the above. A common theme for the PayPal spokesperson was his company’s desire to achieve “ubiquity,” not only in terms of payments acceptance, but in terms of retailing solutions too.

“We sit on all of these, and the vision is much bigger than any one of these: it’s to truly become that center of their financial lives,” Nayar said.

“We would like to be at the center of a customer’s financial lives, but we are not a network because we are not limited to one financial instrument. We are a digital wallet, because those things sit within that instrument, so we’re not bound by any one financial network: we connect with 57 different financial networks,” he emphasized.

How PayPal plans to ensure it stays a part of those financial lives is, interestingly, less by offering new ways to pay and more by creating value-added features that accompany payments. Nayar said that amongst all the talk of innovation and change, it’s sometimes lost on those in the industry that our current payments methods still work, and that consumers need more reason to change their habits than simply trying a cool new technology they’re unlikely to even know they should want.

“Basically, the problems with payment at point of sale aren’t broken. The credit card infrastructure works very, very well. That’s not what’s going to make people start using new technologies,” he said.

“It’s very obvious, but I think sometimes you have to remember that there has to be a payment for it to be a commercial transaction … but that’s the least interesting piece of what we’re seeing happening right now,” Nayar said. “It’s all the services that sit on top of the payment that allows the consumer to drive real value, that allows the retailer to engage with the consumer at a much deeper level than they ever have before.”

A good example of such value-added functionality can be seen through PayPal’s “order-ahead” solution, which they showed off at their Commerce Innovation Center. PayPal demonstrated how a busy mom could buy and schedule pickup at a toy store, and the various opportunities such a transaction presented to both consumer and merchant alike.

Of course, PayPal also recently launched an order-ahead trial with Jamba Juice that allows consumers to place orders, schedule pick-up times and pay for their drinks seamlessly using the PayPal wallet.

Jamba Juice is one of 23 retailers PayPal recently announced will now accept PayPal as a payment option. The list is pretty eclectic, and includes retailers from Home Depot to Radio Shack to Dollar General to Barnes & Noble.

I asked Nayar if netting such a wide mix of retailers was part of PayPal’s plans, and his answer, in a word, was yes.

“We need to get to ubiquity as clearly as possible, with a range of different solutions, that maximize the retailers engagement with the customer. So if you look at the list of the 23 retailers, we’ve specifically gone after different verticals so that we’ve got experience in how that works,” Nayar said.

“When it launches at a home depot or it launches at a Jamba Juice, those are very different customer experiences that you have, and taking those learnings to improve the scale and the connection.”

But if ubiquity is PayPal’s aim, no announcement they made this weekend – and, indeed, no announcement they’ve made since their partnership with Discover – will do more to further their goal than their new agreement with NCR. I asked Nayar to put the deal in perspective, and he could not completely contain his excitement.

“The inventor of the cash register, a 120-year-old company, has signed a deal with what is basically the new cash register, you know,” he asked.

“I mean … the online payment category is something that PayPal invented. But we’ve been … we’ve owned that space, but it’s been online. All of that back end technology is something that we’ve never really been interested in, and frankly those two worlds have never even been close to touching.”

That brought Nayar to perhaps the overarching theme of his talk with me, and what I felt he most wanted to stress in our interview: the mobile commerce revolution, multi-channel shopping and flexibility in payment options are all new aspects of the retailing world that are catalyzed not from the retailers themselves, but from the consumers who are demanding such change.

From a merchant perspective, meeting all of those demands can’t possible come from a single technology, but instead must come from a flexible platform that, in Nayar’s estimation, comes with consumer and merchant outreach, trust and scale.

“What we show here is all these technologies, and it’s not about, ‘here’s a tech that’s going to solve a problem,’ it’s, ‘lets sit down and deeply understand what the problem is, and then we’ll look about how, between us and partner technologies, we can help address that problem.’ Consumers are driving us to make that happen,” Nayar reiterated, “and just the opportunities that open up for brand new consumer experiences that this deal will allow is huge.”

I spoke with Nayar about an hour before eBay released its Q4 2012 results, and so couldn’t ask any specific questions about the numbers that are now public information. Nayar did, however, reference PayPal’s public prediction that it would see $10 billion on total payments volume for 2012, and talked about what approaching that total would mean.

“We’re the mobile payments leader, even if we didn’t end up with [$10 billion], that’s still bigger than anybody else, and now we’re moving into in-store,” Nayar said.

What we know now, though, is that PayPal didn’t just reach $10 billion in total payments volume: they shot way past it, amassing $14 billion in 2012. During eBay’s earnings call, the company noted that the total more than tripled the TPV from 2011, and that 10 percent of PayPal’s TPV came from mobile means.

Overall, eBay’s Q4 earnings represented another positive note in an excellent year, as the company beat analyst estimate by earning $757, or 57 cents per share, during the quarter. Revenue also grew to $3.99 billion, up 18 percent form $3.38 billion a year ago.

The one negative note for eBay came from its outlook for Q1 2013, in which the company predicted earnings of 60 to 62 cents per share, whereas analyst estimates sat at 63 cents. Similarly, eBay forecast yearly gains per share of between $2.70 and $2.75, while analysts had pegged $2.74 a share as a target.

For PayPal, though, the earnings represented nothing but good news, helping to solidify its status as one of the most important and successful parts of eBay’s business.

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