PayPal Lifts the Curtain on an Overhauled Wallet As Rumors Swirl About a Mobile Dongle

With rumors swirling that it is close to launching a mobile-acceptance device for small merchants, PayPal Inc. on Tuesday unveiled a digital wallet that offers a raft of new features at a time when major rivals like Google Inc. and Visa Inc. are introducing new wallets. PayPal’s product, which it says represents the first complete overhaul of its digital wallet in its 13-year history, will become available in May and will offer a range of features, including the ability to apply rewards points to purchases, set rules for the use of certain cards, and set aside funds for special purposes, such as travel.

While many of the product’s features are new, some have been known since PayPal launched its point-of-sale initiative last fall. The new wallet, for example, will let users change the funding source for a purchase in the first seven days after the transaction. Originally, the time period was 14 days. Another tweak is that the feature will also allow users to change from a straight debit or credit transaction to an arrangement that lets them pay in three installments.

PayPal’s efforts to sign up physical merchants has resulted so far in The Home Depot Inc.’s move to accept the payment form in all of its nearly 2,000 U.S. stores. More than 20 retailers are set to adopt PayPal for in-store transactions this year, the company says.

Meanwhile, reports circulated early on Tuesday that San Jose, Calif.-based PayPal, which is set to make an announcement on Thursday regarding services for small businesses, will launch a card swiper that could attach to a handset. If the reports, which apparently originated in a post by Silicon Valley technology-news service GigaOm, are accurate, the move would put PayPal directly in competition with Square Inc., Intuit Inc., VeriFone Systems Inc., and a number of merchant processors, all of which have introduced such devices for small merchants. PayPal spokespeople refused to comment on the rumors.

PayPal’s wallet overhaul comes with a completely new look for its user interface, which the company revealed on Tuesday at SXSW, a music and technology event in Austin, Texas. PayPal officials stressed that, while it can be accessed by mobile devices, the cloud-based product is not embedded in handsets, as is the case with many competing wallets. This allows users to access the wallet from PCs, tablets, or smart phones.

Among the new product’s features is the ability to store merchant’s proprietary cards, not just major-brand credit and debit cards. This feature is unique to the PayPal wallet, according to Aaron McPherson, practice director for financial services at IDC Financial Insights. “The ability to put store cards in the wallet is a big differentiator,” he notes.

But the feature that allows users to salt away funds against future purchases could set off alarm bells among banks, McPherson says. “The ability to do goal-based savings is a shot across the bow [of banks],” he observes, pointing out that up to now funds in the PayPal wallet have always been short term, moving in and out quickly as users traded on eBay or other marketplaces. Now, he says, PayPal appears to be offering something that looks like a savings or layaway account. “We don’t know how hard they’re going to push this thing,” McPherson says. “How big a part of [PayPal’s] strategy is goal-based savings?”

PayPal spokespeople could not be reached on Tuesday for comment on the wallet.