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With a major expansion of its arrangement with PayPal Inc. due later this year, Discover Financial Services is now “the alternative network for alternative payments in the United States,” Discover chief executive David W. Nelms told an audience of merchant acquirers on Wednesday.
Hinting that more deals similar to the one by which Discover is helping to enable PayPal’s strategy to process payments at the physical point of sale could be in the offing, Nelms said, “We’re positioning ourselves as a hub for emerging payments in the U.S.” He also used his speech to promote PayPal acceptance to the audience.
Discover announced this week that some 50 merchant processors have agreed to process PayPal transactions on the Discover network, including half a dozen of the largest acquirers. These companies account for about 2 million merchant locations. These stores are expected to be able to accept PayPal within a few months. One glaring omission from the list of supporting acquiring processors, however, is First Data Corp., which has told independent sales organizations and other partner acquirers it will block PayPal transactions on Discover.
Under the agreement between PayPal and Discover, which the two companies announced in August, Discover will route PayPal transactions from merchant terminals to PayPal for processing. The transactions will originate from plastic PayPal cards linked to accounts that will fall into a specific range of Discover bank-identification numbers.
While the deal could potentially bring PayPal to the 7 million U.S. merchant locations connected to Discover, it has stirred controversy with some ISOs and processors that perceive PayPal as a competitive threat for merchant allegiance. But Nelms told the audience, which was attending the Electronic Transactions Association’s annual conference held in New Orleans, that PayPal acceptance represents a substantial pool of potential transactions for acquirers and appealed for their support.
He said PayPal’s 55 million active U.S. account holders present an appealing demographic for acquirers. Their average annual income, he said, is $75,000, and most are homeowners. Further, he said, PayPal acceptance will require no POS upgrade for merchants. “We’ve made it easy and economical for [acquirers] to add PayPal to [their] payment offerings,” he said. Nelms added that PayPal will take responsibility for consumer marketing. “They have very big plans, they will spend a lot of money,” he noted, without being more specific.
Nelms also pointed to new technologies the partnership with PayPal is likely to yield. “You will be the beneficiaries of these new technologies,” he said. Don Kingsborough, the PayPal executive who is responsible for the San Jose, Calif.-based company’s POS expansion, said in introducing Nelms that PayPal “before the end of June” will launch cards that will include features associated with mobile transactions, such as electronic receipts.
Reinforcing his assertion that Discover’s network will be open to alternative-payments players, Nelms warned the audience that fighting to maintain the status quo in electronic payments is a losing proposition. “To cling to the past is to risk being left behind,” he said.
