For POS Push, PayPal Snags Big-Time Processors But Works to Woo ISOs As Well

The deals PayPal Inc. and Discover Financial Services disclosed last week with processors Vantiv Inc. and Global Payments Inc. are just the start of PayPal’s efforts to win acceptance at physical merchants. PayPal is also starting to woo independent sales organizations to help push its mark into potentially millions of small merchant locations.

Already, executives for the eBay Inc. e-commerce processor are talking to ISOs and speaking at industry conferences as part of a campaign to recruit sales agents who can call on merchants to sell PayPal. A PayPal-Discover agreement announced in August will allow PayPal to use the Discover network to flow transactions consumers carry out with newly issued PayPal cards. PayPal expects to issue plastic to its approximately 50 million active U.S. account holders. The arrangement is expected to become operational by the second quarter of next year.

While Discover’s network reaches about 7 million brick-and-mortar U.S. merchants, PayPal must still sell those merchants on taking its card. To that end, PayPal has won support from Vantiv and Global, both major merchant processors. But it’s hoping to entice ISOs to become its missionaries in the field, as well.

“There will be an opportunity for a PayPal buy rate,” said Matthew Watts, senior manager for North American partnerships for San Jose, Calif.-based PayPal, while addressing a room full of ISO representatives at an acquiring conference in Huntington Beach, Calif., on Thursday. “There are absolutely ways we can partner both for online and offline transactions.” Buy rate refers to transaction pricing charged by processors, which can then be marked by up ISOs as they sell the transaction service to merchants. The lower the rate, the more opportunity for ISOs to profit.

Watts did not give details of the PayPal buy rate, but he referred to pricing moves PayPal made with its Payflow gateway as indicative of how far the company is willing to go to sign up third-party agents. Payflow enables online merchants to send transactions to PayPal or third-party processors. “The moves we’ve made repricing Payflow, it’s aggressive pricing so [ISOs] are able to make money,” he said.

As Watts reminded his audience, the Discover tieup will not mark PayPal’s first time working with ISOs. In 2005, it inherited a number of ISO relationships when it shelled out $370 million to buy VeriSign Inc.’s gateway business. That move, too, was intended to bring PayPal acceptance to small merchants. In this way, the processor hoped to reduce its reliance on its parent company’s online auctions.

Now PayPal sees similar opportunity in the market for physical merchants. “The headroom for growth for PayPal is tremendous,” Watts told his audience at the Western States Acquirers Association’s annual conference. “Without the help of acquirers and ISOs, there is no way we can be where we are today or accelerate forward.”

At least one merchant-processor executive is ready to lock arms with PayPal as part of its deal with Discover. “We want to be right there with them,” Donna Embry, senior vice president at Payment Alliance International, Louisville, Ky., told Digital Transactions News. “The more value I can bring to my retailers, the better.”

PAI has already cut a deal to market the Payflow gateway to its approximately 4,500 merchants with e-commerce sites, Embry says. And the company is talking to PayPal about a service that would allow PayPal account holders to send money to each other via ATMs. Now, she says, PAI is set to start talks about selling PayPal to brick-and-mortar merchants. “I applaud it and I embrace it,” she says. “Bring it on.”