Will Retailers Be Asking PayPal "Where's The Beef"?

M/e-commerce is upon us, bringing with it loads of initiatives attempting to change the consumer/retail experience, particularly around payment. In the midst of this free-for-all, PayPal has quickly gone from testing it's retail payment solution to inking deals with 15 brick-and-mortar retailers and significant POS hardware and software providers. The buzz is revving up but, will this really mean much for stores?

Aside from using accumulated PayPal account credit or a direct bank withdrawal, consumers still pay PayPal via a credit card. So the incremental gain for them is being able to tap some of their PayPal credit, if they have any, to buy merchandise in-store. Else, they are just selecting a slightly different way to run up their charge balance or a more immediate way to siphon off their bank balance. If they don't recognize that initially, they will soon enough. True, there is a small "convenience" of not having to carry and swipe a card, but alternatively, they have to key in a mobile number/PIN and still need to carry a wallet for their driver's license and health insurance card, etc. Consumers essentially trust b&m retailers to handle credit card info safely, so security is a non-motivator. Consequently, unless there are added services, discounts, or incentives, in-store PayPal payments add up to a short term novelty without long term substance or traction.

For a retailer that doesn't have to invest in new hardware (like NFC requires), it's easy enough to say yes to offering the PayPal option. But when those merchants look back in a year or two and try to quantify the gains the new form of payment has delivered to their till, it's going to be hard to do. Each new manner of payment is cannibalistic to other payment options, doing nothing to put more disposable income in customer's hands. Therefore, it will take an amazing amount of spending of accrued PayPal credits to add to a store's bottom line. That's unlikely, so it seems that if PayPal can survive the coming digital wallet onslaught from AmEx,/MC/Visa, they're not going to be much of a better alternative for stores or their clientele.

Ultimately, this is a banking battle. The combatants are fighting to make money off of financial fees, but that's not how retailers sustain/grow their businesses. Retailers needing to move merchandise can't count on a small check-out alternative to deliver people to their stores and push product off of shelves.