With Discover Link Active, eBay Boss Says PayPal Seeking to ‘Build Out’ POS ‘Ubiquity’

PayPal Inc.’s point-of-sale initiative, which has seen the e-commerce processor penetrate thousands of stores while stirring controversy with at least some incumbent processors, will focus on achieving “ubiquity” and solving consumer “pain points” for the next several years, eBay Inc.’s chief executive said on Wednesday.

The initiative, which began early last year with a handful of Home Depot stores, is now live in 250,000 merchant locations through a connection to the Discover Financial Services network, said eBay boss John Donahoe. The San Jose, Calif.-based online marketplace giant owns PayPal. These locations are in addition to a number of major chains that PayPal has signed directly, the latest of which is Radio Shack. “The [point-of-sale[ program is marching along,” said Donahoe.

Donahoe, who spoke during a conference call with stock analysts to discuss eBay’s second-quarter results, called PayPal’s point-of-sale thrust a “greenfield” opportunity that the processor will be working on over the next three to five years. Repeating a theme he has advanced at least since the start of the year, he said key objectives include bringing PayPal acceptance to a high percentage of brick-and-mortar locations—a process he called “building out ubiquity”—and smoothing the shopping experience for in-store customers.

This second objective involves removing so-called pain points, such as standing in line to buy merchandise or to pick up an order. “Standing in line is a pain point, and we’re trying to solve that,” Donahoe told the analysts. “We’ll experiment with different things with different retailers.”

Last year, PayPal worked with a Jamba Juice store in California to allow users who place orders wirh a mobile device to pick up their orders in the store without waiting. The PayPal POS initiative generally allows users to pay for merchandise at the point of sale by entering a mobile number and a PIN. The hookup with Discover involves a conventional plastic card dedicated to PayPal transactions, which are route through Discover to PayPal.

Donahoe also stuck with a projection of $20 billion in mobile-payments volume for PayPal in 2013. He originallly made the projection in eBay’s April earnings call. If fulfilled, the predicted volume would represent a 43% increase over the $14 billion PayPal handled last year. Mobile in 2012 accounted for about 10% of PayPal’s overall volume.

PayPal’s entry into so-called offline processing, though long expected, has not come without controversy. This spring, for example, POS processing giant First Data Corp. said it would block PayPal transactions at stores it serves. Undaunted, PayPal this month introduced its “Cash for Registers” program, which offers free processing up to $20,000 a month to the first 10,000 merchants who sign up for PayPal processing on tablet devices.

Still, the bulk of PayPal’s business remains in e-commerce transactions. Second quarter results for the company included a 17% year-over-year jump in active accounts worldwide, to 132.4 million. Total transactions numbered 700.6 million, up 24%, while dollar volume totaled $42.8 billion, also a 24% increase. PayPal’s transaction margin, however, dipped to 64.4% from 66.3% last year.

At the same time, chargeoffs on Bill Me Later, the online transactional credit service that eBay acquired in 2008 and made part of the PayPal wallet, climbed fully 100 basis points to 5.6%. Questioned during the conference call about the rising loan losses, eBay chief financial officer Bob Swan said the chargeoff rate will “level off” in the next six to 12 months. Calling Bill Me Later a tool to “drive more engagement for our retailers,” Swan said, “We feel good about where we are.”