PayPal partners with Discover to further its offline strategy

Aug. 22, 2012 | by James Wester

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.


Topics: Mobile/Digital Wallet , Mobile Payments , Retail , Trends / Statistics

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