Is PayPal's Home Depot Pilot a Game-Changer?

By Adam Blair
No one wants to spend a second more than they have to paying for their purchases, so payment technology companies know a thing or two about moving quickly. PayPal certainly does: just a few days after announcing the expansion of its brick-and-mortar payments pilot with Home Depot from five stores to 51, published reports indicate that if the no-card, no-phone payment test is successful, it will be made available in more than 2,000 Home Depot stores by March.

In addition, Reuters reports that Office Depot is testing PayPal's POS solution in a few of its stores. PayPal, a division of eBay, has said it plans to offer the service at 20 major retailers by the end of 2012, but it has not yet named the others. PayPal also had a busy, well-attended booth at last week's NRF Big Show in New York City.

"We anticipate [the PayPal solution] will give consumers better shopping experiences and more flexible payment choices," said eBay CEO John Donahoe in a recent conference call. "And for retailers, we believe this will give them opportunities to not only engage consumers at checkout, but also throughout their entire multichannel shopping experience."

Consumers with PayPal accounts can swipe a PayPal card and provide a PIN at the POS, or simply provide their mobile phone number and PIN. Users can link checking accounts, credit cards or other payment methods, and PayPal plans to offer connections to loyalty and gift card programs in the future.

The Home Depot test features hardware from Ingenico, and PayPal has been working with middleware companies including AJB Software Design on payment system integration, according to published reports.

For retailers, PayPal offers the potential for lower transaction fees than credit and debit cards. And as with other mobile payment solutions, such as the Google Wallet that was introduced last year, retailers could offer on-the-spot discounts or other purchase incentives to customers who use their smart mobile devices to scan an item in their stores.

Motivating shoppers to purchase an item in the store (as opposed to price-checking it and purchasing it via m-commerce) would be a powerful way for retailers to push back against competitors such as Amazon.com. During the 2011 holiday season, the online retailer ran a one-day promotion of its Price Check mobile app by offering a 5% discount to consumers who used it and then made a purchase from Amazon.

A few retailers are already testing such location-based and action-based targeting, but if PayPal continues to move aggressively into the physical retail space, many more retailers could take advantage of their payment infrastructure to influence shopper behavior in their stores. It would be another weapon in retailers' ongoing efforts to keep from turning into "showrooms" for their lower-priced competitors.

However, changing the way consumers pay for purchases has traditionally been a slow process, requiring lots and lots of education and motivation. In addition, the current payment industry giants are unlikely to sit back and let PayPal take market share without fighting back. But if PayPal has solved the problem of changing POS payments without requiring retailers to make a significant investment in new POS technology, it has already cleared several big hurdles.

For related content: Home Depot Expands PayPal POS Pilot to 51 Stores

Amazon Promotes Price Check App with One-Day 5% Discount