Everybody that follows the payments industry knows that there is a massive albatross that hovers over every innovation that comes to the market: PayPal. In its mind, there is no realm of payments that PayPal cannot conquer and control. The company chafes when other payment innovations, like Square or the Google Wallet, gain press acclaim. PayPal is almost never first to the market with payment innovations and it does not think it needs to be. The company watches how the market evolves, takes a step back and releases similar offerings, trusting to its brand name and ubiquity to cover the cost.
That is precisely what PayPal has done with its new mobile payments system, PayPal Here. It has all the innovation of a three-day old muffin. Instead of a "Square," it is a triangle. PayPal Here also puts credit card scanners Jumio and Card.io have also been put on notice. Going forward, can PayPal rely on its brand name to create a payments empire or will its arrogance eventually lead it to a path of ruin?
In a blog post, PayPal says, "So, you're asking, how is this different from other small business mobile payment solutions? The key differentiator is that it comes from PayPal, a trusted brand in the online payments industry with more than 100 million customers around the globe and years of proven payment innovation ... ."
Reading PayPal press releases and blog posts is an exercise in patience. If there is a more passive-aggressive technology company, readers would be hard pressed to find it.
PayPal Here is the company's first foray into the mobile credit card reading space. It will have a dongle (the triangle) and the ability to scan a credit card using a smartphones camera. As mentioned above, these innovations are nothing new. Square created the dongle space and Jumio and Card.io both have scanning apps that have been available since 2011 (note: PayPal does use Card.io internally). There are a variety of other companies that play in the dongle space including Intuit, Verifone, Erply and PayAnywhere.
The dongle companies that PayPal seems to have emulated the most are Square and Intuit. PayPal Here is a direct response to Square's Card Case and Register and no touch payments systems. It is also going after Intuit whose strengths is its financial management system and offers a dongle with its GoPayment offering. PayPal thinks it can differentiate itself with a 2.7% interchange rate (1.7% with a PayPal debit card) but as we have seen in the market, mild swings of interchange have not affected which companies ultimately succeed (well, not until we get to the mystical land of "interchange zero").
"I am not sure if its a winning strategy to go after the Square market with a 0.05% reduction in interchange alone, whereas the appeal of Square to small merchants seems to be the simplicity of its offering and its vision of looking beyond our current obsession around payments. When Square is clearly focusing on Card Case, Paypal's strategy here seems to more of playing catch up to Square and enabling entry for its card reader in to international markets, something Square has not attempted yet," said Cherian Abraham, principal analyst of Drop Labs.
In an interview last October, PayPal's head of mobile products, Laura Chambers, said that neither dongles nor NFC would affect the company's lead in the mobile payments space.
"We are not worried about much in the ways of competition," Chambers said at CTIA in San Diego last October. "There is a lot of white space in the industry for horizontal movement."
PayPal Here is what Chambers was referring to when talking about the white space in the industry. PayPal's move through the white space of mobile payments can be seen through the acquisitions that it has made in the last several years. It acquired shopping engine Milo, local search and recommendations startup Where, mobile shopping and scanning app RedLaser, online payments company BillMeLater, carrier billing company Zong, and commerce and interactive marketing services tools through GSI Commerce. PayPal obviously finds it easier and more efficient to acquire services than build them itself.
While PayPal may not be incredibly innovative when it comes to mobile payments, it really does not need to be. Payments are not an area of technology where first movers have an incredible advantage. Square may be the first company to enter the dongle space and it has defined the market, but it also has a lot of competition on its hands from several corners of the industry. Google has not seen any significant traction with its Wallet program and may ultimately be superseded in NFC by the carriers (through Isis) and the transactions giants like MasterCard, Visa and American Express. What we are fundamentally talking about is changing the way people pay for things and that takes time to develop infrastructure and educate users on new ways to commit transactions.
So, PayPal remains on its plodding course through the mobile payments industry. It has positioned itself in such a way that it will never fall fully behind the pack, even if it is not leading it. That goes for the possible revolution created by near field communications (NFC). While it does not yet have any distinct ball in that market (outside of its peer-to-peer payments through smartphones) you better believe that it will be ready if NFC ever becomes a ubiquitous model.
Will PayPal's approach lead to ultimate success in the market? There is no simple answer to that question. PayPal believes that the breadth of its platform can conquer all. The competition sees it as an also-ran, albeit one with a massive user base. As the race unfolds, we will see who gains the upper hand.