Retail Fights Back: PayPal Considers Partnering to Win In-Store Customers

Retailers are fighting back. They are tired of being victims. Of losing customers and profits to online merchants, some of whom may even be the ecommerce subsidiaries of their own corporate overlords.

So they have been exploring how to make convergence work. By which they mean providing the ease and cost-competitive advantages of buying online with the experience and reassurance of actually seeing and feeling the merchandise. And, by and large, they are beginning to succeed.

To assist in this transition, PayPal, a subsidiary of eBay, has begun to explore providing their vaunted digital payment solutions in-store. This provides bricks-and-mortar retailers with the accoutrements and service their customers have become accustomed to, but within the store's physical precincts.

From a strategic standpoint, eBay is fighting to gain position in the digital wallet battle, led by Amazon, Google and Apple. Eventually, businesses will consider this period of transition a quaint 'remember when' era between the traditional historic shopping period and the seamless ecommerce future. For consumers, the only question is who can offer the best deal and service before the framework begins to harden and prices start to go up. JL

April Dembosky reports in the Financial Times:

“Commerce is no longer about location, location, location,” he said. “New commerce is about engagement, engagement, engagement.”
Between the various charts and bar graphs projected on the screen at eBay’s analyst day on Thursday was a cartoon of a woman in a shoe store. Surrounded by dozens of pairs of pumps and dishevelled shoeboxes, a weary store clerk kneels before her, cradling her foot. “This pair is so perfect,” she says. “I can’t wait to buy them cheaper online somewhere. What’s your WiFi password?”Don Kingsborough, vice president of retail for eBay-owned PayPal, said the scenario plays out every day in retail stores. The hundreds of retail executives he had spoken with in the last two years were all trying to figure out how to get the shoppers like the one in the cartoon to buy from them and not from online behemoths like Amazon. Mr Kingsborough said PayPal wants to win those customers.


His team described various applications PayPal was developing to keep smartphone-obsessed shoppers buying at bricks and mortar stores, from loyalty programmes that offer discounts when people enter stores to ordering apps that allow people to place and pay for food orders over their phones then pick them up in the store without waiting in line.
The financial benefits would come not just to the retailers, but to PayPal, too, executives said. After doubling revenues in the last three years, the online and mobile payment company is expecting to double revenues again by 2015, up to $10.5bn.
Overall revenues for the company are projected to grow 50 per cent to $21.5bn in 2015, up from $14.1bn in 2012. Profits will grow between 15 and 19 per cent, according to Bob Swan, chief financial officer.
The focus of eBay’s analyst day was how the company planned to work “with retailers, not against them” in a world where people’s shopping habits increasingly blend the online and offline worlds.
“It’s an anti-Amazon play,” said one analyst, who believed retailers would find the various eBay technology offerings compelling in their quest to defend themselves against the e-commerce giant.
Shares in eBay rose more than 4 per cent on Thursday, closing at $54.22, then rose further in after-hours trading.
Analysts saw the most potential for growth in PayPal. They said its strong foundation in digital payments and its global reach position it well for taking advantage of the “new commerce”.
“Building a payments business globally is really, really, really hard,” said David Marcus, president of PayPal. He took a slight dig at competitors in the financial services industry or technology industry who are competing with PayPal in building a digital wallet, including Visa and Google.
“They don’t have the reach, scale, or innovation,” he said. “It’s easy to create buzz, but only a handful have been able to scale and build a large payments business globally.”
PayPal now has 125m digital wallets, he said.
Several analysts raised questions, however, about whether the company’s investment in new technology and its move into the retail world would ultimately lower margins. Concerns have been growing that credit card companies will eventually follow the lead set by MasterCard in February and begin charging PayPal fees for using their networks in digital wallet transactions.
Mr Swan said no. He said analysts have been asking the broader question about margins for seven years, but the details have evolved – from PayPal’s move toward working with larger retailers several years ago, through the regulations of the Dodd-Frank act in 2011, to potential network fees today. But he predicted core transaction margins would in fact go up, from 60 per cent or more to 62 per cent or more.
John Donahoe, chief executive of eBay, concluded the day by calling the technological changes in consumer shopping and merchant offerings a “commerce revolution” for large and small businesses alike.
“Retailers are beginning to fight back,” he said. “Retail is not dead.”