PayPal is expanding its services beyond online payments. In a deal struck with Discover Financial Services this week, more than 7 million retailers nationwide will begin to accept electronic PayPal payments.
Starting next year, customers will be able to use PayPal-branded charge cards at more than 7 million locations, which currently accept Discover cards.
“The establishment of this relationship is a major industry milestone, which will help shape the emerging payments landscape by bringing together an established direct banking and payments company with a leading commerce enabler to create an alternative payments option for consumers at the point of sale,” said Diane Offereins, president of Discover Payment Services, in a statement.
“This initiative will result in real change and innovation for the industry by bringing new technologies to the point of sale that benefit merchants and PayPal customers.”
Merchants do not need to upgrade their systems, but simply put up a decal to inform customers that PayPal is accepted. Customers swiping their PayPal-branded cards will automatically have the purchase deducted from their active PayPal accounts.
PayPal is Internet giant eBay Inc.’s fastest growing business and has become a growth driver for the San Jose, Calif.-based company known for its online auction website. The payment service counts more than 50 million members.
With this move, PayPal further expands into the physical brick-and-mortar retail industry. Earlier this year, PayPal introduced PayPal Here mobile payment service via smartphones. It will rival San Francisco-based Square. Square, itself, recently partnered with coffee giant Starbucks Corp., and will process all credit card transactions for Starbucks stores in the United States starting this fall.
The PayPal-Discover alliance will also drive usage of Discover cards. Currently, Discover trails Visa, MasterCard, and American Express in the number of users. Merchants accepting PayPal charges will be charged a credit card fee much like those from current credit card companies, and PayPal will be able to access sales data and other related information from merchants.
While the innovation is there, the volume of users for these new services—including mobile payments—remains a question.
“Until mobile reaches high penetration, which is years out, there is a question about how many PayPal users would use the plastic card,” Citigroup analysts wrote in a research note Wednesday. The number of mobile payment kiosks at retail locations, especially smaller retailers, remains limited.
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