PayPal is back to take a second swipe at in-store payments (sorry, couldn’t resist the pun). They initially took a run at enabling account holders to pay at the point of sale back in 2012, and failed miserably. This past year they rolled out a new approach to tackle offline payments that is much more aligned with how consumers actually want to pay. And it looks to be a winner, now accepted at over 600,000 retail locations worldwide and accounting for $20B worth of in-store payment volume in 2020.
When I was at PayPal in 2012, the company was abuzz about the trial taking place with The Home Depot. For the first time, PayPal could be used to pay for goods in a physical retail store. This was touted as the next major evolution of the company. However, the actual user experience left a lot to be desired, and ultimately the lack of any meaningful adoption ended up killing the initiative.
The concept was to allow PayPal account holders to check out at a point of sale using just a PIN code – referred to internally as “open hand”, since no card or mobile device was required. Just enter your PayPal user ID (usually your email or phone number) and then enter your PIN. Sounds easy, but it proved to be a major pain for shoppers. Instead of merely swiping a credit card, the shopper had to stand there at the POS device, manually type their email address on a small screen and then enter their PIN. The growing line of waiting shoppers behind anyone who attempted to pay this way pretty much ensured that it was a one-time experience. Ultimately, it was a solution in search of a problem.
This time around, PayPal has a number of factors on their side. PayPal’s (re)launch of in-store payments in 2020 aligns nicely with recent trends, particularly in our touch-phobic COVID world, as it appears that mobile payments have reached a tipping point in consumer adoption. And the new PayPal experience at the POS is much more elegant and significantly simpler for the consumer.
A recent consumer survey by Cowen Research found that over 50% of respondents indicate increased use of contactless technology since the onset of COVID-19. Plus, a whopping 70% of respondents indicate they plan to increase use of contactless solutions going forward. Of course ApplePay and GooglePay have strong current penetration among consumers. However, 79% of respondents indicated that they are at least open to using another digital wallet provider in the future so the market is still wide open for PayPal to make further inroads.
This time, PayPal’s updated in-store payment solution utilizes QR codes to work its magic. To pay at a physical POS, all a shopper has to do is pull up their PayPal app, click the Scan / Pay button and a QR code is automatically generated and displayed on the screen. The checkout clerk then just scans the code and voila, payment completed. No unnatural acts are required, either on the part of the checkout clerk, who already knows how to scan QR codes, or the consumer.
Of course, PayPal’s $20B in-store payment volume is merely a drop in the $1 trillion in total payment volume PayPal did last year. But it’s a significant start, with very impressive progress since launching less than a year ago. PayPal may have encountered some bumps and bruises along the way, but it appears that they have finally figured out how to move beyond the virtual world and into the malls, grocery stores and drug stores made of good old brick and mortar.