If you thought the heat of the mobile payments industry might cool a bit after weeks of major announcements like the Square/Starbucks partnership, the launch of a new mobile payment company dubbed MCX by several national retail chains, and PayPal’s trial of in-restaurant payments at McDonald’s locations in France, think again.
PayPal announced the biggest partnership yet in the U.S. mobile payments market today – a deal with Discover that will bring PayPal in-store payment to seven million locations next spring.
The move is a vast expansion of PayPal’s current in-store payment program that launched earlier this year following a trial at select Home Depot stores. The current program includes additional retail chains, but is still rather limited. The new partnership with Discover will radically change that and help PayPal leapfrog ahead any other companies developing a mobile payment infrastructure, including Apple, by several orders or magnitude.
As part of the agreement between PayPal and Discover, POS systems that accept Discover will be upgraded by software update to accept PayPal payments. The move will deliver the ability to accept PayPal as a payment source to the seven million merchants that currently accept Discover across the country. That means major retail chains, small mom and pop companies, and everything in between. Because the transition will occur as a software update, it will not require any real expense on the part of merchants.
PayPal’s current in-store payment system allows users to pay for items using a PayPal Access Card or by entering their a mobile phone number and PIN associated with their PayPal account.
At launch of the partnership, which is scheduled for April of next year, merchants will be able to accept payments using PayPal Access Cards. The system will then be extended to include the current mobile phone number payment method as well as authorizing payment using a mobile app. The mobile app authorization will process after the user has shared location data with the merchant to verify the transaction.
At that point, PayPal will have mastered many of the key requirements needed to make mobile payments a serious option for merchants and customers – it will require no physical wallet, be readily available at a vast number of locations, will not require and new or specialized hardware like an NFC reader on the part of merchants, will not require a mobile phone or device upgrade for consumers, and it will be easy to use.
This doesn’t mean that competition for control of mobile payments will be over, but competitors will need to establish themselves pretty quickly if they want to stay in the game.
What this means for Apple’s mobile payment plans isn’t clear. To date, Apple has been mum on what those plans are, but many industry insiders and consumers assume that Apple has been quietly working towards developing its own mobile payment solution. iOS 6’s Passbook feature is seen as a step in that direction. Apple, of course, has its own payment infrastructure thanks to its iTunes Store (which effectively includes the iOS App Store, Mac App Store, and iBookstore). Up till now, that has been considered a serious advantage that Apple can leverage.
It does seem clear that today’s announcement is a major shake up in the mobile payments industry. It’s possible that, after today’s news, a significant delay by Apple in releasing or even announcing a mobile payment option could severely limit the company’s chances of dominating this industry the way that it has others over the past decade.