December 31, 2011, 12:00 AM

The Checkout Challenge

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In another instance, when the consumer is not in a store, but uses an eBay app, such as the RedLaser mobile shopping app, to search for a product, she can pay for merchandise within the app but pick it up in the store.

Toys 'R' Us Inc., No. 29 in the Internet Retailer Top 500 Guide, is the first retailer to enable this option. In one scenario, a shopper may see a toy at a friend's house and decide to get it for her daughter. A scan of the toy's bar code using RedLaser brings up a list of local and online stores. Realizing there is a Toys 'R' Us store on her way home, the shopper selects the toy within the app, selects the option to pick up the item in the store and signs into her PayPal account to pay for it.

PayPal's edge

That could be a convenient way to shop for many consumers, and PayPal is not the only player seeking to offer payment and other services through mobile phones. Besides Google, another competitor is Isis, a mobile payment scheme backed by three of the four big U.S. wireless carriers: AT&T Mobility, T-Mobile USA and Verizon Wireless.

But PayPal has something these rivals lack: A solid base in online payments. PayPal actually has two bases. First is the PayPal payment system with 103 million active users. PayPal represents most of the 17% of online retail sales made through such web-based payment systems, which also include Google Wallet, the rebranded name of Google Checkout, and Amazon Payments. But overall growth of these systems is moderate, projected to reach 19% of online sales by 2016, according to Javelin Strategy & Research.

But PayPal's merchant services unit, which handles payment processing for online retailers, has grown steadily in recent years, largely through aggressive pricing. It accounted for most of the 21.3% annual growth in eBay's payment revenue from 2007 to 2010. By last year, eBay's total payments business, built around the two PayPal franchises, accounted for more than $3.4 billion in revenue, or 60% of the $5.7 billion in revenue from the company's core marketplace business.

If consumers start using PayPal as a way to pay in physical stores, it can only increase their comfort with using it online. And for many consumers PayPal is already their first choice for payment, either because they don't have a credit card, trust PayPal with their card data more than they trust some e-retailers, or have accumulated cash in their PayPal accounts by selling items on eBay.

Whatever the reason, PayPal is among the top three payment methods used by customers at sports gear e-retailer Fanatics Inc., says Brian Swallow, vice president of sales and marketing. And while most consumers pay with credit cards at the four e-commerce sites operated by Lifetime Brands Inc., the e-retailer behind the Pfaltzgraff and Mikasa housewares brands, PayPal "is a significant part of our business and something that's valuable to us," says Jeff Berman, president of the e-commerce division, who would not be more specific. "The world of e-commerce today is a world of choice," Berman says. "Consumers want options."

Many major e-retailers now offer PayPal. Of the retailers listed in the Internet Retailer Top 500 Guide, which ranks the 500 largest retailers in North America by web sales, 250 accept PayPal. That's more than any other payment method other than the major payment card brands.

"We want PayPal to be accepted at the largest retailers across different categories, but also on Main Street," Shrauger says.

That won't be an easy sell, analysts say, because those Main Street stores have complex payment, loyalty and customer history systems that they'll update to accommodate a new service only for good reason.

"PayPal has a reasonably significant share in the online environment," says Beth Robertson, director of payments research at Javelin. "Penetrating the point of sale is a whole different animal."

That means PayPal and eBay will have to cobble together their acquired technologies to make shopping significantly more convenient for the mobile phone-toting consumer. If they come up with a service that consumers embrace, inevitably retailers will follow.

kevin@verticalwebmedia.com

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