Home Depot Starts National Rollout of PayPal POS Payments to Almost 2,000 Stores

The Home Depot Inc. on Tuesday started rolling out a point-of-sale payment system that will let customers pay with their PayPal accounts at all of the home-improvement retailer’s almost 2,000 U.S. stores. The rollout comes just seven weeks after the two companies unveiled a five-store pilot in the San Francisco area, and represents a significant step forward for PayPal Inc.’s strategy to push into the physical point of sale.

The chainwide expansion also comes as competing digital wallets from rivals such as Google Inc. and Isis, a consortium put together by the country’s largest wireless operators, are working to ramp up acceptance of their products. Google launched its Google Wallet commercially in September. Isis on Monday announced three major bank issuers for its platform, which will launch in July in Salt Lake City, Utah, and Austin, Texas.

Both Google Wallet and Isis depend on near-field communication technology to transmit payment data, while PayPal’s system requires users to type in a mobile phone number and PIN at the POS device. Users can also swipe a PIN-secured, mag-stripe card PayPal is issuing for the program.

“We’re impressed with the way it works,” says a Home Depot spokesman. “We believe the solution has the potential to improve the checkout experience as we know it today. We see this as an additional option to improve the consumer experience and convenience.”

Home Depot is likely to be followed by more major chains. PayPal officials have said some 20 retail companies will be using the new POS system by the end of the year, though they have not named any merchants. Unlike the case with Home Depot, the deployments will be full-bore installations from the start, not tests. “We are securing relationships for the supply of commercial services,” says Patrick Gauthier, head of product strategy and business operations at PayPal.

Nor will these be small or mid-size merchants. “We’re going where the consumers are, deploying with top merchants,” Gauthier says. “This is not a science experiment for us.”

PayPal is offering attractive acceptance rates to the merchants, with pricing below what they are paying for major-brand card acceptance, says Rene Pelegero, a former PayPal executive who is president of Retail Payments Global Consulting Group, Woodinville, Wash. “[Home Depot] is just the tip of the iceberg, because the economics to the merchant will be rather compelling,” he notes.

Gauthier will not discuss pricing in detail, but says it is “competitive, very clear, very simple, very transparent.”

The Home Depot expansion starts with stores in the South and Upper Midwest and will continue across the country, concluding March 8 with the retailer’s Chicago and St. Louis locations, according to a PayPal blog post from Don Kingsborough, vice president of retail and prepaid products. PayPal hired Kingsborough last year from Safeway’s Blackhawk Network prepaid card operation to head up its thrust into physical stores.

While PayPal has not formally eschewed NFC, it is for the time being content to rely on a cloud-based system that keeps cardholder credentials out of the phone. Google ran into a major security issue earlier this month when experts discovered they could make a smart phone expose a Google Wallet PIN after gaining root access to the device’s operating system.

Still, some observers question whether consumers will want to go through the process of entering a phone number and PIN each time they do a transaction, a process that seems somewhat less streamlined than phone-based NFC. Gauthier says, however, that the majority of transactions in the Home Depot pilot, which ultimately grew to 51 stores, were performed without the card. “It was a positive surprise,” he says. “It was more pronounced than we anticipated.”

When it unveiled its POS payment system in October, PayPal said it would offer one feature not available with any card that could prove appealing to consumers. At any time up to 14 days after a transaction, the user can change the funding source for the payment, switching, say, from a credit card to a bank account or prepaid card. While this feature was not offered at Home Depot, Gauthier says it will be rolled out over the coming months, possibly with longer or shorter periods than 14 days and possibly allowing consumers to change from full payment to an installment plan.

In other PayPal news this week, the company said business fliers can now book a room at the Yotel chain of airport hotels with PayPal, using the Web browser on a smart phone.  PayPal also announced its Carrier Payments Network, an initiative to allow consumers to buy digital goods from a broad array of online merchants and charge the purchases to their wireless bill. The initiative, which relies on Zong Inc., a carrier-billing payments processor acquired last year by PayPal parent eBay Inc,, will require carriers to allow higher tickets and take a smaller share of each transaction. Historically, carriers have levied fees as high as 40%.