January 25, 2012, 4:31 PM

Home Depot plans to accept PayPal in all stores

51 stores operated by the home improvement chain already accept PayPal.

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The Home Depot Inc. plans to begin accepting PayPal at all of its bricks-and-mortar stores by March, according to a spokeswoman for PayPal, the payments services arm of eBay Inc.

The multichannel home improvement retailer earlier this month launched a pilot at five stores where consumers can pay with PayPal, which until now has been an online payment service. Then, last week, eBay CEO John Donahoe said that the retailer was expanding the testing to 51 stores. Those participating bricks-and-mortar stores are located in the San Francisco, Atlanta and Omaha, NE, metropolitan areas, says the spokeswoman. PayPal is also testing the system in some Office Depot stores and says it will hold trials with 20 more retailers by the end of the year.

Consumers inside the Home Depot stores can use their PayPal accounts to pay in two ways. One method allows a consumer to pay by entering her phone number as well as a personal identification number into a point-of-sale terminal. The telephone number would have to be previously associated with her PayPal account. A consumer also can swipe a PayPal-issued card tied to her PayPal account.

“I went to the Home Depot in San Jose this morning,” said Donahoe last week during a conference call with analysts. “I left my wallet and my cell phone in my car. I walked into the Home Depot, and it was one of the five [stores] where we got this pilot going. I picked up a hammer and picked up a tape measure, which I had right in front of me, [and] walked into the checkout lane. Without my wallet, without my mobile phone, on the terminal, I pressed pay with PayPal, I put in my mobile phone number and a PIN, and boom, I was done. The receipt e-mailed to my e-mail account, texted to my mobile phone and I walked out. So it was a beautiful experience.”

PayPal widely broadcast its in-store intentions last year, declaring that PayPal acceptance at bricks-and-mortar stores was one way it plans to grow. PayPal was on track to process $100 billion in online transactions in 2011, a PayPal spokesman said at the time, but that is a small fraction of the $8 trillion in global transactions at the retail point of sale, as calculated by The Economist Intelligence Unit, the research arm of The Economist magazine.

For merchants, accepting PayPal may be appealing because its rate structure will likely be lower than other payment methods, says Herman Leung, an analyst at Susquehanna Financial Group. “We think it will be lower than what’s out there so that there’s a reason for merchants to offer PayPal,” he says. Another enticement, he says, is that PayPal shares valuable information about the consumer using his PayPal account with merchants, such as where the consumer lives, that the retailer can then use for marketing.

But both retailers and PayPal face an uphill battle to convince consumers to pay with their PayPal accounts rather than a credit card, says Leung. “PayPal solves the problem of consumer’s mistrust with using their credit cards online,” he says. “But I don’t see the credit card process offline as broken or in need of an added convenience.” To get consumers to turn to PayPal, there will have to be incentives, he says, not unlike how credit cards offer rewards programs.

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