Kerfuffle is one of my all-time favorite words.
I used it a while back to describe the situation that happened when some CurrentC merchants decided to shut off NFC capabilities at their terminals, thus denying iPhone 6 consumers the opportunity to use Apple Pay.
That created a kerfuffle that lit the Twitter-sphere on fire and gave Apple Pay accepting merchants an opportunity to invite consumers into their storefronts.
Then, I saw it over this past weekend describing the Anthem breach, alluding to the situation that was emerging within the Anthem organization as they were trying to respond to the fact that 25 percent of the population of the United States just had their most personal information swiped by cyber criminals.
But perhaps most relevant to the payments industry was the kerfuffle that was generated when a news story surfaced last week related to the eBay layoffs that were first announced in January. It was reported that staff on PayPal’s in-store side were hit particularly hard. That story spun off the rails when an interview with former PayPal executive Don Kingsborough quoted him as being “disappointed” at PayPal’s lack of progress in pursuing in-store payments.
He wasn’t the only one.
I personally thought that it was game-set-match for PayPal nearly three years ago when their deal with Discover essentially gave them an unprecedented opportunity to leverage the Discover network assets and the merchant and consumer relationships that went along with it to capture a commanding position in-store using the PayPal mobile app. There were a couple of pilots shortly after the announcement was made, and what seemed to be a concentrated set of activities to capture momentum in the online ordering space, but as far as in-store acceptance is concerned, to me, it has seemed like crickets ever since.
Of course, over that same period of time, Apple was heads-down working on its own payments plan, which we now know includes embracing the traditional network and issuer model and active promotion on the part of the networks and issuers to bring consumer awareness to its mobile payments capabilities. Whatever you may think about Apple Pay, it’s undeniable that its introduction has changed the conversation about mobile payments. In many ways, Apple Pay’s introduction into the space has finally ignited mobile payments as a category even if Apple Pay’s own ignition remains in question.
But back to the PayPal kerfuffle.
The Apple Pay momentum and the news of the PayPal in-store layoffs has caused more than a few people to connect what they perceive to be the dots that call into question PayPal’s viability as a mobile payments player in-store and more broadly, in retail.
I caught up with PayPal’s GM of Retail, Brad Brodigan, on Thursday of last week and asked him some pretty pointed questions about all of this. What follows is the transcript of this interview, edited only to take out my and his “ums and ahs.”
Join me on the other side of this interview and I’ll give you my take on what this all means.
KW: I just went to a very nice briefing at NRF [January 2015] where I learned about your PayPal Here partnership with Microsoft and then took a spin around your booth and saw all sorts of activities that looked like a lot of in-store retail stuff was going on. Yet news reports suggest that in-store is more or less on the PayPal death watch list.
What’s going on?
BB: Despite those reports, our retail strategy remains a core focus for our business and while the retail team, in fact, had some employees that were impacted, it was really similar to other areas of the business that were impacted and the retail team was not a particular area of focus. At all.
We continue to work with our retail partners on in-store solutions. We recently rolled new in-store solutions with a number of retailers and merchants like Burger King, AutoZone, Dollar General and many others. But as a payments company, we understand that there’s a wide range of various form factors around mobile payments and those are evolving.
We remain committed to supporting digital payments across those form factors – both those that have already become broadly accepted by merchants or consumers, and those are evolving. Whether that is a QR code, whether that is a check-in experience, or whether that’s NFC, we are absolutely focused on supporting all of those form factors, though obviously the landscape has been changing quite a bit.
KW: So the in-store RIF was mostly about adjusting the composition of that team to better reflect what merchants require going forward?
BB: It was really less about an adjustment in strategy and more just about a PayPal, actually eBay-wide, initiative to simplify our overall organization to improve our ability to get things done. So, it’s really not related to any change in retail strategy.
KW: OK, so I take it that you are suggesting that the media may have gotten a little too far in front of this story, particularly, in light of the developments with Apple Pay, which we will get to in a minute. But let me dig in a little bit more.
I remember writing a story when the announcement of PayPal/Discover was made public almost three years ago that I thought, for sure, was going to be the really pivotal moment for moving PayPal’s in-store efforts out in front in a pretty significant way. There seemed to be a lot of momentum and a few pilots which you put out there to test the waters. But I haven’t seen a lot of visible traction around it and I haven’t heard a lot coming out of PayPal since.
So what happened?
BB: I think you’ll see a lot of what we do in 2015 will be based upon our partnerships with Discover and others – partnerships that were put in place a few years go. And Discover remains an important partner for us.
But similar to our online business, our in-store strategy is largely partner dependent and we’re committed to going to market with important partners like Discover. That means that sometimes faster has to take a backseat to making sure that our commitment to providing a great payment experience is what our partners want, is safe and is something that our consumers will love.
We’ve also been watching the market for mobile payments over the last couple of years, and I think you’ll agree it’s been pretty dynamic. We’ve been developing our strategies based on the evolution of those market dynamics.
KW: So reading between the lines, are you saying that it took longer to get things in market and to get traction than you initially anticipated?
BB: I think the speed to market has taken longer largely because there are a lot of moving pieces in the world of point of sale, software and hardware. We think we’re starting to see some consolidation of interests around various form factors, and, as I said, PayPal remains committed to developing for those form factors, whatever they may be.
KW: Not to keep pressing, but are you saying that the lack of visible momentum is because there’s stuff going on that we can’t see – but will soon – and not because merchants are pushing back?
BB: Yes. I think merchants are actually very eager to work with us on mobile strategies. What we and our partners, and our merchants, are working on are making sure that the solutions we provide are broadly accepted and I think we’re starting to see more momentum and consolidation around acceptance.
The last two years has seen a lot of testing and learning with our partners and our merchants and I think that we, like others, are starting to see more consolidation. And, we are making sure that we are able to enable payments across those form factors through our mobile wallet and our partner integrations.
I would say merchant demand is all ahead of some of the consolidation around various solutions so merchants are very eager to continue to have a strong mobile payment, digital payment solution. I think in many cases their interests are ahead of their own capabilities, so we’re working with them to make sure we have alignment.
KW: So are you suggesting that one reason for the lack of visible traction is that merchants aren’t – for whatever reason – able to execute? That there are other corporate priorities, like the move to EMV, security, etc. that have taken more of a front seat?
BB: Yeah, most point-of-sale integrations have been there for a very long time and delivering innovation around those point-of-sale integrations takes time. It’s obviously the most important lifeline for merchants and we want to make sure that the integrations we do actually help them grow their business. Making sure that we do that in an efficient manner is critical for us.
KW: There were some pretty specific references in the stories that have been written about the PayPal Here business, again suggesting that it’s pretty much on life support. And you say…..
BB: Our PayPal Here business is doing really well. The business grew dramatically in 2014 and is generating significant TPV that is incremental for PayPal. And in 2015, we’re going to continue to grow that business directly as well as through key partnerships like Microsoft. Our PayPal Here strategy remains very similar to our core business which is, we have, we will continue to focus on direct merchant outreach as well as key strategic partnerships, like Microsoft to grow that business faster than we would certainly by ourselves.
KW: Alright, so let’s switch gears and talk about Apple Pay. There’s obviously been a lot fanfare around Apple Pay in the market. I think a lot of people in the industry initially said (and many still say) “that’s it – we can kinda concede the mobile payments game to Apple, at least in the iOS operating system because they’re NFC, they’re tokens, they’re issuer friendly.” Critics of yours would argue that you probably don’t tick any of those boxes.
So when people hear of in-store layoffs at PayPal and see how Apple Pay has changed the conversation about mobile, the dots they are connecting is that it’s game over for PayPal in-store and the layoffs are simply evidence of that reality.
How do you respond to that?
BB: We have a committed approach that is agnostic to platforms and across channels. We are focused on helping merchants to have flexibility, to differentiate their experience over other merchants. Whether that’s using PayPal as a payment method in a merchant application, to enable things like ordering ahead or to provide them with value with services such as loyalty or offers, we’re committed to working with our merchant partners in an agnostic way so they can, in fact, have a differentiating experience.
This is what they say is mission critical to their business and we want to make sure we can also leverage merchant transactions data to provide a differentiated experience in a way that others can’t. And by being able to work with merchant partners to include things like loyalty rewards, offers, even things like credit, directly in their digital payment experience, we can provide merchants with a high value differentiated experience that will be a value to consumers for a long time.
I think that we do feel very good that PayPal, our retail strategy will benefit significantly from all the changes that we’re seeing in the mobile payment and digital payments space. We think we’re really well-positioned to continue to benefit from the adoption of mobile and digital payments, even though we’re going to continue to see evolution in the marketplace, we think we’re really well-positioned to take advantage of those growing adoption of mobile digital payments.
KW: So then is what you’re saying is that PayPal’s focus is really more than just the act of paying in a store with a PayPal app? That it’s really about wrapping other things around payment that help merchants enrich their relationship with their customer?
BB: That’s right. We believe that for consumers to adopt a new way to pay, there has to be a compelling value proposition. And that value proposition will differ from merchant to merchant.
For example, quick serve restaurants are really looking for ways to provide an enhanced experience for their customers, so certain merchants will focus on things like order ahead and embedded loyalty offers to make that experience better and more compelling. We’re working with each merchant to make sure they can leverage their unique assets and experience to allow digital payments to actually make the payment experience better for the merchant and for the consumer.
Additionally, the value added services that we offer to retailers and consumers should be a key indicator that we’re serious about retail – whether it be online, in-store, mobile. Giving merchants the ability to offer services like credit, business consulting, helping them take advantage of cross-border trade – all these things come together to help retailers grow their business. Transactional credit has proven to do that. Cross-border has proven to do that. And we’re going to continue to evolve those kinds of offerings so that we can give merchants the tools to create better experiences for merchants and consumers with those kinds of products.
KW: OK. The last question is really a little bit about a vision that PayPal has for the in-store experience.
You’ve touched on that a little bit as you’ve described PayPal’s focus as being about more than just the physical act of payment. So, I want to talk about this notion of terminals and hardware and using the mobile device to initiate payment at a terminal.
I happen to think that the future of in-store payments is apps on devices that consumers have communicating via the cloud with merchants that may never require a physical interaction with a terminal on a counter in a store, even if that customer is standing in the store when that transaction happens.
In that scenario, the power is in the app, and the app has to have incredible functionality and appeal to get consumers using it. And, therefore, the focus needs to be on making the app something that consumers love and want to use, regardless of where they are shopping.
What’s your view?
BB: I would agree with you that smartphones and applications have a tremendous opportunity to provide an improved shopping and buying experiences for consumers wherever they interact, including in a store.
I think that what we believe that merchants all want to have a large influence on differentiating those experiences, they want to be able to create a different experience for their consumers. They know who their consumers are, they know how to create a differentiated experience based upon using things like the knowledge they have, the data they have on consumers as well as their overall in-store and mobile experience.
I do believe that we are working very closely with merchants to make sure that we power the payments in a way that is seamlessly integrated with those experiences that they’re providing to the customer and we’re continuing to make sure that merchants can provide a fast and easier way for consumers to shop and buy whether it’s online, through mobile or in-store.
I do think that the ability of the app to provide an improved in-store buying experience is what many, many, many merchants are interested in, and it is our job as a payments company to make sure that we enable payments in a way that is faster and easier, safer and more secure for both the merchant and a consumer.
And I think our integrations with companies like Uber or Airbnb or Order Ahead or Eat24 are examples of where we can partner with merchants to enable the experience that they want to have with differentiated, where payments becomes seamless and in the background.
KW: And in the background, regardless of where that consumer happens to be standing, they could be standing in their family room or they could be standing in a store checking out with something they just purchased in a physical environment.
BB: That’s right and Karen I think you’ll remember from our session with Microsoft, we talked about The Bridal Boutique, we talked about the problem that they were having with the traditional cash wrap and now with the mobile point-of-sale system, they can distribute the point of purchase. I think with that you’re saying, we agree with it, we can continue to see the evolution, traditional in-store experiences will adapt and adjust so that the shopping or buying experience can be distributed whether it’s on a merchant point-of-sale solution or on a consumer mobile device, no longer will you need necessarily to be required to have a traditional cash wrap experience if the payments and the shopping experience can move into a mobile point of sale or digital device.
KW: Is that an insight, Brad, that you guys have always had or is that something that’s evolved over the last couple of years as you have been working with merchant partners trying to crack the in-store experience?
BB: At PayPal, our thinking has always been about enabling payments everywhere consumers and merchants want to shop. I think when you think about the Food Truck world, that was kind of an early wake-up call to the notion of “boy, we’re seeing digital payments happen in places where they haven’t happened before.”
I think our thinking around the in-store experience has certainly evolved the last couple of years. Technology innovation and EMV regulations in America are forcing a massive change and reinvestment in point-of-sale hardware and solution adoption. I think it’s becoming a reality based upon some practical factors. But what can happen in-store and how we can enable that has definitely changed and evolved over the last few years.
If you look at in-store payments in the classic sense of using a phone instead of a card inside of a physical store to pay for something, PayPal has possibly lost a two-plus year window of opportunity in making some bold moves to gain acceptance of the PayPal payments brand at the physical point of sale and has to hustle to make up lost ground.
Or, more intriguingly, is planning to disrupt it by using its assets to change where that game is played.
Retail is a complicated segment now for a variety of reasons, many of which I have written about over the years. There a million things coming at merchants now whose one and only top priority is to sell more customers more things. EMV and security has thrown retailers a bit of a curveball as they try to sort out ways to limit their downside risk.
This, of course, is all coming at a time when retailers are also desperate to embrace mobile. What merchants see in the mobile opportunity in-store is the opportunity to remove friction, and not introduce it, into the shopping experiences of their customers.
And, today, in-store, that isn’t the act of paying for something.
What does introduce friction is a consumer trying to keep track of offers, coupons, sales, shopping lists, preferences, reviews, recommendations, pricing, inventory availability, having to mill around the store looking for stuff, and then having to schlepp to a specific place in a store and stand in line to pay for something. Not only does all of this introduce friction for the consumer, it introduces friction for the merchant, too – not to mention lost sales opportunities.
Over the last several years, retailers have been barraged by the sales pitches associated with new technologies and mobile payments schemes that, by and large, haven’t done much to reduce that friction. Most of the schemes they’ve been asked to adopt either are only about payment – where friction simply doesn’t exist and so makes for a challenging business case – or only about loyalty, which depending on the app, has marginal benefit to the consumer or merchant.
From my perch, PayPal seems to be dividing the notion of in-store payments into three segments.
First, it seems to be shining a bright light on its merchant services business – giving merchants tools to manage their businesses more efficiently and helping them engage consumers so that they can buy more things. They’ve made a big push around transactional credit (Apple, in fact makes it available for purchases in their online store), payment after delivery, free shipping and a variety of demand generation/value added services including offers and gift cards.
Second, on the merchant services side, it’s revving up its business consulting and merchant cash advance services so that SMBs can get the most out of their relationship with PayPal as a merchant solutions partner. PayPal Here has evolved over the years, and as its recent partnership with Microsoft Surface seems to reflect a preference for deepening its relationships with ISVs and the channel so that payments integrated with segment-specific solutions can enable merchants to accept cards and, of course, PayPal mobile payments anywhere in their store fronts. Brodigan didn’t say this when I spoke with him, but it wouldn’t surprise me if some of the secret sauce yet to be revealed is PayPal enabling merchant private label cards via the Discover rails in its app. That could be a game-changer at the point of sale since we all know how merchants feel about private label cards.
Third, there’s the app side.
Braintree’s v.zero solution enables one-touch payments inside of apps – PayPal, Apple Pay, Bitcoin, along with any other kind of payment. Not only does “one touch payments” eliminate the friction of shopping online or in an app, apps are where the blurring of offline and online commerce is the most striking. Payment inside of an app for a product or service consumed in or picked up from a physical location is becoming more and more of a priority for retailer and retailers.
It’s where the definition of in-store payments gets awfully murky too.
PayPal is also making a big push in the cross-border payments area, where the ability for consumers to use PayPal to buy from any store anywhere (and match that with their 14-day pay after delivery proposition) eliminates the friction and uncertainty of buying from an unfamiliar seller and, hopefully, increases sales for those sellers.
So, to me, PayPal is starting to look a lot more like a company that’s placing its bets on leveraging the synergies between its merchant services group and its consumer payments capabilities and a lot less like a company that is trying to double down on being a “payments” company.
That suggests that PayPal’s ambition isn’t to compete as a payments app with Apple Pay (or Samsung Pay) at the point of sale for payment – but to perhaps take a page out of the Alipay play book and become a commerce and financial services brand that creates a trusted and reinforcing circle of services around businesses and consumers.
Frankly, I almost think it has to.
For PayPal to best leverage its 170M registered users, global network, and many merchant partners, it needs to be the connective tissue between merchants, SMBs, consumers and partners with a robust portfolio of assets that make that a reality.
But a big piece of that – and what will save PayPal from becoming more than just a white label network and a commoditized merchant services business – it has to give more consumers more reasons to use its app.
PayPal has to be the consumer’s first choice, especially in an age where the app is (and will be) where it’s at. Apple Pay and “Samsung Pay,” among others, are all working pretty hard to make their brands primary, and all other brands subordinate.
But, in the end, merchants will respond to what they think their consumers want. And, today, the playing field is still pretty wide open.
Apple Pay is getting the biggest PR share of voice of the mobile payments pie, and if the rumors are true, Samsung will add its voice to that chorus pretty soon. PayPal has 170M users of its product all around the world, who can actually use its product today to pay, to finance those purchases and who can be given incentives to shop at a bunch of merchants.
PayPal’s job is to change the tune to one that merchants want to sing to because they believe that PayPal’s assets and consumer base can deliver incremental sales and lots of added value that go beyond just enabling payments along the way.
The mobile payments chorus may be warming up, but if you ask me, we’re far from hearing the Fat Lady sing.
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