PayPal Runs a Brief Test in Sweden to Check out Cloud-Based NFC for POS Payments

In a move that could be seen as a precursor to mobile in-store payments using so-called cloud-based near-field communication (NFC), PayPal Inc. is testing an app that works with contactless stickers to allow consumers to access their PayPal accounts.

The test, which is taking place at two stores in Stockholm, Sweden, is set to run for only a few days, concluding before Christmas. The app was developed by Stockholm-based technology firm Accumulate AB and works on both Apple Inc.’s iPhone and handsets running Google Inc.’s Android software. The stickers are read by point-of-sale terminals deployed by Point Transaction Systems AB, also of Stockholm. Point is being acquired by VeriFone Systems Inc. in a $784 million deal announced last month. Accumulate and Point approached PayPal with the idea of conducting the pilot, according to a PayPal spokesperson.

The retailers are Webhallen, an electronics store, and Alpingaraget, a seller of outdoor gear. The test at the former store started on Monday and is set to run through Christmas Eve. The latter store’s test is set to conclude on Wednesday after a similar five-day run. The PayPal spokesperson says data have not yet been collected on the tests, so it is unknown so far, for example, how many stickers have been handed out.

In the tests, customers who have PayPal accounts download the Accumulate app and log into it by entering their PayPal credentials. They also use the app to register their contactless stickers, which they receive from the participating stores, and affix the stickers to their phones. They may then make purchases by waving or tapping their handsets around or on the Point readers. After the sale, the transaction appears within the app on the customer’s screen.

The PayPal spokesperson calls the project “a very small test” and says he doesn’t know of any plans at PayPal to expand its NFC efforts at the point of sale. NFC is a contactless technology that allows handsets to conduct transactions at the point of sale as well as send and receive other data, such as merchant offers, tickets, and other media. The spokesperson says PayPal is “doing a bunch of experiments” with technologies that might be suited to proximity payments, including NFC. “We’re not betting the bank on NFC,” he says.

While PayPal has at times been publicly skeptical about NFC, it has adopted the technology as part of its latest Android app. The NFC widget in the app permits person-to-person payments rather than point-of-sale transactions. PayPal also worked with contactless stickers for POS transactions with mobile phones in a partnership with Bling Nation, a company that suspended operations earlier this year.

As with the P2P widget, all personal financial data for the Stockholm tests are managed on PayPal servers, in what is known as a “cloud-based” arrangement, rather than on the user’s handset. With most NFC ventures announced so far, the data are stored inside the phone in a so-called secure element, which is an embedded chip or the phone’s SIM card. “It’s another attempt by PayPal to connect the person to the cloud,” says Todd Ablowitz, president of Double Diamond Group, a consultancy based in Centennial, Colo. “It’s PayPal’s vision of how they want NFC to work.”

Sticker-based NFC can have limited practicality, though. Ablowitz points out that even if sticker costs drop to the price of a mag-strip card, the costs of distribution can be high. “Distributing stickers is very expensive and logistically challenging,” he notes, making it difficult to scale beyond pilots.