The day when PayPal, a long-established online payment brand, is a more common transaction type inside bricks-and-mortar stores is a little closer after the company’s acquisition of Fig Card, a mobile payments startup, industry observers say.
PayPal, a unit of eBay Inc., recently announced the Fig Card purchase, but is saying little about its intent for Fig. PayPal did not release terms of the deal or say when the deal closed, and is not commenting on the acquisition beyond an entry from Peter Chu, PayPal senior director of mobile, on the PayPal blog.
“All the customer needs is the Fig app on his or her smartphone,” Chu writes. On the merchant side, Fig says the payment scheme requires a retailer to deploy an inexpensive device that plugs into an existing point of sale device or electronic cash register. “We loved their approach to point of sale, particularly because it was driven by the same vision that we have at PayPal—in the future, transactions can be as smart as a computer and not as dumb as paper,” Chu notes. “We won’t need our physical wallets. We’ll be able to pay any way we want, from any device, anywhere in the world with both flexibility and privacy.”
Fig’s web site contains no details about how the scheme works, how consumers store their payment information or any security protocols.
But a short video on Fig’s site shows the basic steps of a transaction made at a quick-serve restaurant. A consumer opens the Fig app on her smartphone by entering a personal identification number, and after placing an order with the cashier, taps a Ready to Pay button in the app. A dialog box then appears on the merchant’s POS system that displays the Fig user’s photo and buttons for the merchant to accept or cancel the transaction, or to block the user. Another button enables the merchant to enroll the consumer in a loyalty program. The communication between the smartphone and merchant POS system appears to go through the Fig device attached to the merchant terminal, but Fig and PayPal did not respond to requests to clarify how that interaction takes place.
Upon payment authorization, the tally appears on the POS system screen and on the consumer’s smartphone.
The video narrator says the merchant never sees the consumer’s payment card number and no sensitive payment data is stored on the consumer’s phone. The video does not show the enrollment process or disclose any fees.
PayPal very well could take Fig’s technology and make it available to developers creating programs using PayPal X, the company’s development software, suggests Richard Ogelsby, senior analyst at consulting firm Aite Group LLC. For example, a retailer could create a mobile app that not only enables consumers to browse and purchase goods via PayPal but also allows consumers to use the app to buy merchandise in the retailer’s stores, paying with PayPal.
Merchants would have to make a relatively small investment to make that work, which makes that scenario attractive, says Richard K. Crone, CEO of Crone Consulting LLC.
“The attractive thing about Fig is they can promote a mobile payment capability without any new hardware at the physical point of sale,” Crone says. The Fig merchant device would be an add-on to existing hardware, not an entirely new POS terminal. “That’s really a big deal.”
He adds that PayPal’s move to the physical point of sale represents a “far greater market opportunity” for PayPal than relying on e-commerce transactions alone, he says. E-commerce sales totaled $165.4 billion in 2010, while total retail sales amounted to $3.92 trillion, according to the U.S. Department of Commerce.
Merchants are much more likely to adopt a new payment system if it is affordable, agrees Aite’s Ogelsby.
“If it makes it more affordable for merchants, it works for merchants,” Ogelsby says. “This shows PayPal is not looking to make money from the hardware, but from growing acceptance,” he says.
PayPal says more than five million people used its mobile products in 2010, generating $750 million in payment volume, a 431.9% increase from $141 million in 2009. By 2013, PayPal expects that volume to grow to $7.5 billion.
“If mobile is going to be about the electronic wallet and getting to merchants, PayPal seems to have a leg up on competitors,” Ogelsby says.