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PayPal partners with Discover to further its offline strategy

For those wondering why PayPal wasn't making a supersize deal out of the report this week that it's piloting a payment partnership at 30 McDonald's in France, it turns out it's because that news wasn't the biggest story for the company this week. It was only the apple slices in the Happy Meal of PayPal news, so to speak. The toy surprise was today's announcement that PayPal will partner with card brand Discover to make PayPal available at more than 7 million merchant locations in the U.S. and millions more worldwide.

A big 'toy surprise'

Beginning next year, PayPal will work with Discover to get the card brand's network of merchants to accept PayPal's offline payment method. It's a part of PayPal's bigger strategy to move from its online roots into the world of brick-and-mortar retailers.

To use their accounts at offline merchants, PayPal's 50 million U.S. account holders need only key in the phone number associated with their PayPal account, then enter a PIN. The process is simple for consumers, and it allows merchants to accept PayPal payment without changing out their point-of-sale terminals. PayPal first piloted the offline strategy with Home Depot last year and announced another 15 retailers earlier this year.

What Discover brings to the party is a relationship with thousands more merchants. The partnership allows any merchant accepting Discover to begin accepting PayPal. And unlike larger competitors MasterCard and Visa, which rely on merchant acquirers to connect to merchants, Discover has a direct relationship with merchants that accept its cards. It also acts as a merchant acquiring bank for 1500 merchants.

"We're delighted to enable PayPal's efforts to provide their U.S. customers acceptance at millions of physical point-of-sale locations by leveraging our unique payment services assets," said Diane Offereins, president of Discover payment services, in the announcement.

"The establishment of this relationship is a major industry milestone," Offereins said, "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."

Offereins said the partnership will result in real change and innovation for the industry.

Expanding footprint, expanding services

Access to Discover's merchants is a big deal for PayPal, to say the least. With one partnership, the company has been able to expand its footprint from 16 retailers to potentially thousands of retailers with millions of payment terminals. 

"It’s astonishing to think that in less than a year we’ve brought PayPal to the point of sale at more than 3,000 brand-name national retailers in the U.S.," said PayPal's VP of retail, Don Kingsborough in a blog post about the deal.

Kingsborough highlighted the fact that Discover merchants won't have to install or upgrade hardware or software to accept PayPal.

"The market has been looking for leadership as the payments space evolves and we think this relationship starts to deliver it," Kingsborough said. "It is a milestone for PayPal as it enables us to innovate at scale."

For the moment, the partnership will be all about transactions, meaning it's more about paying at the point of sale. However, in a conference call discussing the partnership, Kingsborough said the parnership eventually will lead to Discover being able to offer additional merchant services that leverage PayPal's online and offline reach and data for efforts such as marketing and targeted offers. 

For more stories like this, visit the mobile/digital wallet research center.


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User Comments – Give us your opinion!
  • Philip Cohen
    PayPal, like Square, is a middleman that in the main rides precariously on the backs of the existing payments processing systems of the retail banks' and Visa / Mastercard via a credit card merchant account with there own retail banker. Square at least has a practical use for merchants away from B&M (and that’s undoubtedly why Visa has taken an interest in Square), but I can see no logical use for Square at a fixed physical point of sale ...

    The clunky PreyPal having any real chance of success at physical point of sale is a possibility that exists only in the fevered hallucinations of eBay’s destructive chief headless turkey, John Donahoe …

    And, if you don’t believe me, next time you visit Home Depot, ask the cashier how PreyPal is going there … LOL.

    Consumer’s bank > Visa/Mastercard > Merchant’s bank …

    There is a consumer’s bank and a merchant’s bank at either end of each transaction. Why would any merchant, particularly at B&M physical point of sale, want to add to the mix, an additional utterly clunky layer?

    PreyPal is an unlicensed “pretend” bank; no prudential regulation; users’ funds are not covered by FDIC insurance; there is effectively no customer support; no effective “professional” transaction mediation—hard-wired bias usually towards payers; arbitrary holds on payee’s funds; no formal “dynamic” partnership with the retail banks that underpin Visa/MasterCard (how does PreyPal approve transactions?); and who bears the risk/cost of fraud; clunk, clunk, clunk …

    Consumer’s bank > PayPal > Visa / Mastercard / Discover > PayPal “bank” > merchant?

    Why McDonald's would ever consider getting into bed with PreyPal, with the reputation that PreyPal has, is simply incomprehensible to me. Don't any of these retailers do any due diligence beforehand, or do they simply take Bain's word for it that this is a great deal and everything will be OK.

    Still, if eBay is footing the cost of the roll out and marketing of these PreyPal POS services and also subsidizing the processing fees, why should these retailers not take advantage and help Donahoe waste some more of eBay’s shareholders’ funds? Indeed, why not? Because PreyPal has an abominable reputation, particularly so with payees. No sane business needs to invite damage to their brand reputation via a relationship with such a clunky operator as PreyPal.

    Regardless, when these “Pay Here With PayPal” retailers soon enough realize that the additional layer of clunky PreyPal at physical point of sale is a joke, and a very poor one at that, at least they can then throw all the PreyPal equipment and signage in the skip—at no cost to them …

    Visa and Mastercard are the mature, professionally qualified children of the retail banks, and with 90% of the payments business between them, these two are here to stay—and on top. Anyone who tells you that PreyPal, or any of the other “middlemen” can ever be of any serious threat to the market share of these two “bank” cards is simply being disingenuous …


    Diners Club (now owned by Discover) was the very first credit card; ultimately it was interred by Amex and finally had a concrete slab poured over it by Visa / Mastercard; no one under the age of 80 has even heard of Diners Club, let alone used one of their cards ...

    Discover (1.3%) and Diners Club (0.3%) combined have
  • Philip Cohen

    Diners Club (now owned by Discover) was the very first credit card; ultimately it was interred by Amex and finally had a concrete slab poured over it by Visa / Mastercard; no one under the age of 80 has even heard of Diners Club, let alone used one of their cards ...

    Discover (1.3%) and Diners Club (0.3%) combined have
  • Philip Cohen

    Diners Club (now owned by Discover) was the very first credit card; ultimately it was interred by Amex and finally had a concrete slab poured over it by Visa / Mastercard; no one under the age of 80 has even heard of Diners Club, let alone used one of their cards ...

    Discover (1.3%) and Diners Club (0.3%) combined have less than 2% by volume of the total payments market (about the same as PreyPal has in online payments), way, way behind Visa (59%), MasterCard (31%) and Amex (8%). Visa has 1,897 million cards; MasterCard has 975 million cards; Amex has 91 million; Discover has 56 million … Do the math …


    PreyPal was a great idea and had its initial success because of its versatile online function, which Visa/MasterCard had previously ignored; its effectively mandated use on the eBay marketplace also gave PreyPal a boost.

    Having said that, once Visa’s even more versatile online digital wallet,, is out of beta testing on and is generally available to merchants who would otherwise be accepting credit cards directly, those merchants will drop PreyPal like a hot potato.

    PreyPal will quickly become the “merchant account” provider of last resort for the absolutely desperate, and otherwise will be relegated back to the eBay marketplace and will continue to atrophy along with the eBay marketplace …

    Added to all that is the influence on PreyPal, of the utterly unscrupulous eBay, the greatest calculated and ongoing facilitator of wire fraud on consumers the world is ever likely to know …

    “Shill Bidding Fraud on eBay: Case Study #5”

    In reality, the eBay marketplace has been stagnant since 2008 following John Donahoe taking the helm and starting his "destructive renovations". And, relatively speaking, the eBay marketplace has been atrophying, and will undoubtedly continue to do so under the direction of Donahoe; not even a couple of abnormal, hot-air inflated, quarters in early 2012 will keep this rusting old scow afloat much longer ...

    “When Do We Start Calling eBay A [Failed] Payments Company?”

    And here’s the latest eBay survey of sellers—of sellers! This one definitely has the smell of utter desperation, even death, about it. When did eBay last give two hoots about what its non-national brand sellers thought?

    And, just for fun some additional comment on PayPal’s off-eBay products: "The New Way To Pay In-Store" (at Home Depot), PayPal Here, SmartPay, PayPal Digital Wallet, PayPal Debit MasterCard, PayPal Local and Watch With eBay ...

    eBay / PayPal / Donahoe: Dead Men Walking
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