PayPal has launched a new mobile payments service in the U.K., which enables customers to use their phones to check themselves out of participating stores, without requiring retailers to install new equipment to make this possible. The new service will be competing with Barclaycard’s PayTag, which does the same thing, but uses a different data transmission technology — the near-field communication (NFC) technology — which, crucially, does require merchants to install new point-of-sale (POS) hardware.
PayPal’s new payment service relies on the technology that powers Starbucks’ Mobile Pay, which launched in the U.S. in January 2011 and immediately turned into a runaway success. However, PayPal’s version is a marked improvement over Mobile Pay, because it is far less restrictive in the choice of a payment method at the checkout. Whereas a Mobile Pay user can only pay the transaction amount with a Starbucks prepaid card, a PayPal user can choose any one of the payment accounts stored in his or her PayPal account. That is a huge improvement indeed and it also prompts a question: do we really need NFC?
How PayPal inStore Works
PayPal’s new m-payments service, called inStore, will initially be available in four U.K. stores: Coast, Oasis, Karen Millen and Warehouse. Before they can pay with it, PayPal users will need to download an app, which is only available for the iPhone and Android-based devices (BlackBerry is getting left ever farther behind).
Whenever an inStore user is ready to check herself out of a participating store, she would launch the app and log into her account. Then:
- The app will display a unique barcode and number on the phone’s screen.
- The retailer will either scan the barcode or key-enter the number into the POS terminal.
- The payment amount is deducted from the customer’s PayPal balance or is funded with her preferred payment method and she receives a confirmation email.
Payments can be completed even if the user has no mobile network or WiFi coverage. That is possible, because the app stores several barcodes at any time, which can then be used offline when they are needed.
Additionally, inStore acts as a coupon book, which contains offers PayPal thinks may be of interest to its user. Once she finds an offer she likes, the user will need to accept it and then the discount will be automatically applied at the checkout.
The Case against NFC
PayPal inStore makes a very strong case against the need for NFC adoption. By most measures, the two services seem indistinguishable. To begin with, both Google Wallet and inStore use a four-digit PIN for log-in purposes. Both Isis and PayPal support all major credit and debit card brands, as well as other methods (and Google Wallet has promised to do the same). And inStore’s checkout procedure is almost identical to the one implemented by either of the two major NFC-based wallets.
However, PayPal has a huge advantage over its NFC-based rivals and it is one that would be appreciated by merchants and users alike. The former do not need to install any new hardware to be able to accept inStore payments and the latter do not need to get new (and expensive) handsets to be able to use the new service. PayPal U.K. managing director Cameron McLean makes a valid point when he tells The Telegraph that:
[It] underlines our view that mobile payments don’t need NFC technology to succeed… PayPal’s ‘pay by mobile’ service works with the phones most of our customers already own. And our retail partner doesn’t have to install new systems to take in-store mobile payments.
Indeed and it is very difficult to find a plausible counter argument.
Starbucks Mobile Pay proved that something as prosaic and old-fashioned as the 2-D scanning technology that is used at all big retailers and many convenience stores can provide a solid foundation for a new-age mobile payments service. Whereas Google Wallet is yet to make any meaningful headway and Isis hasn’t even launched its pilot program, Starbucks Mobile Pay is growing at a phenomenal rate and is currently processing a million transactions a week. Now PayPal is upping the ante. Not only is its inStore app a formidable NFC opponent, but it could also one day be used at Starbucks checkouts, at least in theory. I know I would prefer using inStore to Mobile Pay to pay for my espresso.
Image credit: YouTube / PayPal.