I went by the San Carlos Home Depot on the way to the Glenbrook office this morning and used PayPal’s “Empty Hands” to pay for my purchase. The whole thing worked and I left the store with a Home Depot receipt that listed my payment method as “PayPal” instead of “Visa XXXXXXXXXXXX9297”.

Here’s the in-store sequence I experienced. After grabbing what I needed, I decided to go through one of their assisted checkout lanes because I didn’t know if Home Depot had enabled both assisted and unassisted checkouts as part of their trial with PayPal. There was no obvious signage or promotion that the store was participating in the trial, but it turned out to be be self-evident at the POS terminal. I knew I was on the right track when the woman in line in front of me stepped to the POS and said, “Oh, I can pay with PayPal now? That’s cool.”

When it came time for me to pay I told the cashier that I was going to pay using PayPal. He said, “Go for it.” The Ingenico POS terminal showed the typical line items, tax, and total, but had two new buttons at the bottom – Pay with PayPal and Swipe Your Card. The Pay with PayPal sequence was pretty rough, but it worked. The graphics were Windows 3.1 quality, and I had to hit “Okay” after it told me to swipe my PayPal Card in order to get to the prompt for my phone number and PIN. The cashier told me I was his first PayPal checkout.

There was no serendipity here. eBay soft-launched the trial registration page to PayPal users on Twitter yesterday, and I wanted to test how PayPal works at the POS.

To participate in the trial, I had to register for “Store Checkout” with PayPal and tie my PayPal account to my mobile number. To do this they sent me an SMS message with an activation code which I had to playback to PayPal. Other than linking my mobile number to my PayPal account, my phone was not involved in any other step of the purchase. That’s actually okay with me, as I don’t have my phone with me all the time — and sometimes leave the house without it. (As an aside, the hardest part for me about testing the Starbucks Card iPhone app was remembering to take my phone into the store!)

One of the “Store Checkout” profile options let’s PayPal users order out a PayPal Card. A FAQ indicates that it takes two to four weeks for the card to arrive. In the meantime, Empty Hands is ready to go immediately.

Another one of the “Store Checkout” options deals with receipts. You can toggle between “Send Receipts to PayPal Account and Phone (SMS fees may apply)” or “Send Receipts to PayPal Account Only”. The first is the default.

After I completed my initial purchase, I checked my PayPal account to see if the receipt had come through. It had and was not too surprising — other than seeing that Home Depot was passing line-item data about what I bought to PayPal. I would normally say passing line item data is a HUGE deal — in an offer targeting way, not a privacy paranoia way — except I can’t ever imagine PayPal being able to interpret what I bought from the line-item descriptions. The descriptions just weren’t that useful.

So here’s my bottom line. Not surprisingly, the initial deployment has some kinks and is not yet an unwrap-the-iPhone experience. But working this out is the whole point of a limited trial. I’m willing to cut everybody some slack in the early going, as it’s hard to get every little detail right.

I expect we’ll hear many card industry people question PayPal’s approach. Wouldn’t a card swipe have been quicker? What about people that don’t have mobile phones? How do returns work? Doesn’t this require each merchant to integrate PayPal acceptance? Isn’t this actually good for issuers because it turns card present into card not present transactions? But isn’t this more expensive for merchants?

For me, I felt that paying without having to take anything out of my wallet was nice, and I liked it in a subtle but pleasing way. Now that I think about, I don’t know why anybody would want a PayPal Card if they can use PayPal Empty Hands – maybe not all PayPal merchants will support Empty Hands in their POS? I especially like the receipts being sent to my online account. I have a whole drawer full of Home Depot receipts that I would love to move up to the cloud. I’m pretty sure that I’ll be using PayPal for every one of my purchases going forward at Home Depot.

Try it yourself and let us know what you think. You can activate PayPal Store Checkout on your PayPal account at http://www.paypal.com/anywhere.

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January 29, 2012 Update: I went back this weekend — after PayPal formally opened their trial to consumers — and can say that Home Depot is now in this trial with both feet.

When you walk in the store there is a 3 foot by 8 foot PayPal promotional sign hanging just inside the door. Every checkout lane has a color pamphlet that explain the PayPal Store Checkout activation process and how you would use PayPal to pay at the POS. Just so you don’t forget, every POS device is also sitting on top of a PayPal promotional placemat. I also noticed that all of this was in both English and Spanish.

This time I used one of the Self-Checkout Registers and PayPal was fully integrated as a new tender type. Before tapping “Start Now”, the large touchscreen interface clearly showed the PayPal “decal” along side the other payment brand decals. At the point I was ready to pay, the PayPal option was one of a dozen payment methods support by Home Depot. In both cases, the graphics were nice and crisp. Moving over to the terminal to handle the “Empty Hands” process, the graphics were still a little primitive, but the flow to enter my phone number and PIN seemed to be flawless. All in all, nicely done.

####Final Update: Just saw that PayPal now has a YouTube video that illustrates how the whole thing works. A picture is worth a thousand words.