PayPal Says Discover Deal ‘on Track,’ Gets Set to Promote POS Service to Consumers

A buoyant John Donahoe, chief executive of eBay Inc., said on Wednesday that PayPal Inc.’s launch on the Discover Network is “on track” to begin toward the end of the second quarter. A key part of eBay unit PayPal’s strategy to bring its payment service to the physical point of sale, the Discover tie-up was announced in August and will make physical PayPal cards usable at some 7 million U.S. merchant outlets.

PayPal also revealed it processed nearly $14 billion in mobile-payments volume in 2012, up from $4 billion in 2011 and $4 billion more than the company's $10 billion estimate for the year. Mobile payments now account for about 10% of total PayPal dollar volume, up from 3% in 2011. PayPal projects it will handle $20 billion in mobile volume in 2013.

Speaking to stock analysts during eBay’s fourth-quarter earnings call, Donahoe called out other advances in PayPal’s POS strategy, including the announcement this week that the company finished 2012 with 23 signed retail chains and is now live in 18,000 locations. PayPal this week also struck a deal with NCR Corp. to integrate its mobile-payments technology with NCR platforms used in hospitality and convenience-store settings.

Donahoe added that, while PayPal has concentrated on signing brick-and-mortar retailers over the past year, it will soon begin to market its physical POS service to consumers, as well. “Our real focus has been on getting merchant coverage,” he told the analysts. “We haven’t focused a lot on consumer adoption to date. We’re trying to build more density of acceptance so a consumer can use PayPal multiple times a week in the offline world.” PayPal will continue its push to sign more merchants, he said, but added, “We will start the flywheel of consumer learning in 2013” without giving details of how the company will market physical-world acceptance to PayPal users.

The earnings call came in the midst of a busy week for PayPal. At the National Retail Federation’s annual expo in New York City, the processor announced it has increased the number of retail chains that have agreed to accept its digital wallet from 16 to 23, exceeding the target it had set for 2012. Starting a year ago with five Home Depot Inc. stores, PayPal’s payment service for the brick-and-mortar world now has the potential to be accepted in 40,000 outlets with the added merchants, says a PayPal spokesman.

The seven chains recently signed include Famous Footwear, Dollar General Corp., Mapco Express Inc., RadioShack Corp., and Spartan Stores. Two other retailers were signed but do not want to be identified until their pilots go live, the spokesman says. Mapco Express operates 377 convenience stores under various brands on the East Coast. Spartan Stores is a grocery distributor that runs 96 supermarkets in Michigan.

In a separate deal this week, NCR announced an agreement under which it will integrate PayPal into a trio of its mobile applications. These include NCR’s recently introduced Mobile Pay and Convenience Go apps. With the former, PayPal will be included as a payment option on the app, and the integration will allow users to locate stores, order ahead, and check in as they arrive. Convenience Go will allow customers to buy gas, food, or car washes at convenience stores, at the pump or inside the store. The third application involves an upgrade to NCR’s Netkey Endless Aisle solution so that users will be able to check themselves out while inside the store.

And in yet another announcement during the expo, PayPal said it is piloting a so-called order-ahead feature with a Jamba Juice location in Emeryville, Calif. The feature allows PayPal users to select a product on their phone, pay for it, and then bypass the line when they go to the store to pick up the item. PayPal says more Jamba Juice locations will adopt the service during the year. PayPal clearly expects this “line-skipping” feature to be popular. “Consumers don’t like [standing in line],” Donahoe observed about the Jamba Juice deployment during the call.

Statistically, PayPal enjoyed a robust fourth quarter, “the busiest in PayPal history,” as Donahoe put it. The company added more than 5 million active accounts to reach 122.7 million, the biggest quarterly gain in more than eight years, according to Donahoe. Total dollar volume hit $41.4 billion, up 24% from 2011’s fourth quarter, while transactions totaled 691.7 million, a 26% rise.

While PayPal officials during the earnings call lauded eBay’s transactional-credit service, Bill Me Later, for a strong year, the service’s chargeoffs rose steadily throughout 2012, reaching 5.3% in the fourth quarter, up from 4.4% in the year-ago period. Questioned about the losses, eBay chief financial officer Bob Swan said the chargeoff number was “in line with our expectations.” Since Bill Me Later, which is part of the PayPal wallet, generates higher conversion rates for PayPal’s online clients, eBay is willing to tolerate higher risk with the product, Swan said.