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PayPal Inc. will pilot its latest move to the point of sale with an undisclosed merchant this quarter, add more merchants early in 2012, and establish merchant pricing for the service over the next three to six months, eBay Inc. chief executive John Donahoe told stock analysts on Wednesday.
Donahoe, who would not name the test merchant, characterized the initiative as a “friends and family pilot.” “The focus is helping them drive incremental sales,” he told analysts attending eBay’s third-quarter earnings call.
PayPal, a unit of eBay, unveiled last week an unembossed, PIN-secured mag-stripe card that account holders can use at the point of sale to access funding sources in their PayPal wallets. The company at the same time demonstrated a cardless companion service called Empty Hands, which allows users to pay at a POS terminal by entering a phone number and PIN. Both services are slated for rollout to some 20 unnamed merchants in the first half of next year following a pilot in the fourth quarter, PayPal officials told Digital Transactions News last week.
But, perhaps with handset-based payments in mind, Donahoe on Wednesday hinted that the initiative may at some point take on forms beyond the card and Empty Hands. “We’re building the POS so it’s not dependant on any form factor,” he said.
A dominant processor of e-commerce transactions, PayPal has been formulating a POS strategy for at least the last two years. Donahoe told analysts merchants have been asking for it. “We’ve had a number of off-line retailers approach us to say they want to bring PayPal to the point of sale,” he said. He compared the POS strategy to that used about five years ago when PayPal moved beyond its historical base in the eBay marketplace to sell its brand directly to established online merchants. That initiative, known as merchant services, now generates about two-thirds of PayPal’s dollar volume.
Asked by one analyst to name the pilot merchant, Donahoe said the retailer will disclose itself later in the quarter. “We won’t get into any press-release wars,” he said. “We’ll get the steak ready before the sizzle.” POS payments, he said, are “an enormous opportunity” and called them “the next chapter in PayPal’s playbook.”
Referring specifically to mobile payments, Donahoe said PayPal has built an advantage over rival providers with a 5-year-old service called PayPal Mobile that is now projected to process $3.5 billion in payments this year, quintupling the volume processed in 2010. Among other things, he said, PayPal is ahead of competitors in managing mobile risk. “Mobile payment is a fundamentally risky thing,” he told the analysts. “With $3.5 billion in real transactions, our risk models are learning very rapidly how to underwrite mobile transactions.”
For the quarter, PayPal reached 103 million active accounts, up 14% from the third quarter of 2010. It processed 459.2 million transactions, a 29% increase over the year-ago period, while total dollar volume grew 31% to $29.3 billion. The company’s transaction margin after transaction expense and losses slipped slightly from 62.1% to 61.5%.
