Over three years ago I wrote a cheeky headline about “PayPal World Domination” (covering the 2009 eBay Analyst day) and that post has remained one of the top 10 Payments Views pages ever since – evidence of the enduring curiosity, anxiety, respect, and skepticism that PayPal evokes in payment professionals, whether they are incumbents or innovators.

Yesterday PayPal announced its latest point of sale partnerships and further outlined its plans to move from online to offline – well, to be more precise, from online to cross channel commerce: online/mobile/physical POS. Going back now to review PayPal’s ambitions in 2009 there was barely any mention of offline transactions; the growth focus was on broader merchant services and adjacent online payment markets (mobile, government, nonprofit). Yesterday PayPal’s president David Marcus (video) and retail VP Don Kingsborough (video) outlined an aggressive plan to dominate offline transactions, as the distinction between online and offline purchasing becomes increasingly blurry. Although my colleague Allen Weinberg and I were both struck by PayPal’s ambition, we were equally interested in what wasn’t said.

First, what PayPal did say:

PayPal’s initial offline foray at Home Depot scaled rapidly from 5 stores to 2,000 locations in a matter of months. Yesterday, Home Depot’s Dwaine Kimmet was on hand to share his perspective (video). He touted the PayPal checkout experience as fast, the post-transaction txt message receipt as valuable to consumers, and that Home Depot perceived the process as secure.

PayPal’s goal is to have 20 major retailers on board by the end of the year, and announced 15 yesterday: Abercrombie & Fitch, Advance Auto Parts, Aéropostale, American Eagle Outfitters, Barnes & Noble, Foot Locker, Guitar Center, Jamba Juice, JC Penney, Jos. A. Bank Clothiers, Nine West, Office Depot, Rooms To Go, Tiger Direct and Toys “R” Us.  Many of these retailers target the youth market, a segment that is mobile and social savvy, and who are often paying with cash. Retailers have very little information about those buyers and are betting that PayPal can provide rich transactional/behavioral history and insights, as well as  associated marketing solutions.

PayPal recognizes that to succeed in the physical point-of-sale its solutions are competing with the status quo – not other digital wallets  – and PayPal will have to be better than cash or payment cards. Moreover, they have to bring added value to both merchants and consumers in order to gain traction. The PayPal Digital Wallet, for both online as well as cross-channel use, has the potential to make each and every consumer feel like a VIP when they enter a store based on geolocation. This promise was first offered by Square via its Pay With Square (nee Square Card Case) product and now PayPal is betting it can leverage its base of over 110 million active consumers to take the recognize-me-at-the-register concept to scale.

This requires “ubiquity” and the need to “innovate at scale” – both phrases used repeatedly yesterday in our conversations with David Marcus, Don Kingsborough, and Patrick Gauthier at PayPal. In order to achieve this scale and ubiquity, PayPal is taking a partnership approach, aligning with POS solution providers to support full scale deployments, “not pilots or limited scale tests” in a not-so-subtle jab at other wallet solutions.

Large Retailers

PayPal previously announced its partnership with Ingenico, the #2 POS terminal manufacturer. Yesterday it announced that its solution will be supported by VeriFone (#1) and Equinox (#3). Depending on the retailer, the effort to “turn on” PayPal at the POS will vary dramatically – some retailers will be able to easily avail themselves of PayPal by accessing the latest version of their terminal manufacturer’s firmware. Others may rely more heavily on in-house customization at the POS and will take additional effort to accept PayPal. Regardless, these three partners are a big step toward PayPal’s ubiquity goal.

Mid-Market Retailers

PayPal also announced a series of partnerships with POS solutions that target mid-market retailers including: Leapset, ShopKeep (video), Vend (video) and  Erply (video). Many of these are SaaS providers that integrate with the retailer’s inventory and accounting solutions. PayPal indicates that these partners reach over 50,000 mid-market businesses, many of which have multiple locations.

Small Retailers and Sole Proprietors

PayPal is selling to the smallest businesses directly with its PayPal Here mobile POS solution, which competes with Square, Intuit, and an increasing array of other companies offering card acceptance to microbusinesses. We learned yesterday that demand for the PayPal Here readers has exceeded PayPal’s expectations – over 300,000 merchants have requested one.

Savvy retailers recognize that success is no longer a function of simple location and are turning to a mash up of mobile/social/online marketing to reach beyond the corner storefront. Don Kingsborough observed yesterday that 47% of $3 trillion in retail revenue will be affected by multichannel commerce. And that payments is just one small element of the over all purchase process. Yet merchants are bombarded with solution providers that claim they can enhance marketing efforts, provide meaningful customer transaction data, and drive incremental sales. PayPal’s success in the cross-channel space may very well be determined by how it delivers against those expectations.

What wasn’t addressed yesterday:

While PayPal announced a number of new partners, there were no acquirers or ISOs included. How does First Data fit in all of this?

Within the payments industry, the conventional wisdom is that you need cards to make meaningful inroads at the POS – hence all the jockeying to retrofit NFC into the mobile phone form factor – but here is PayPal turning conventional wisdom on its head. Never mind your card, never mind your phone, just check out “empty hands” with your phone number and PIN.

The industry has long accepted as fact that it’s a huge challenge to persuade retailers to make modifications to their POS systems. Isn’t that one of the widely accepted rationales for meager mobile POS adoption? But what we are witnessing is 15 national retailers happy to make changes to their POS environment because they believe there will be payoff – in terms of data and incremental sales. This video from yesterday features Jamba Juice CEO James White sharing his company’s rationale for partnering with PayPal at POS.

Time will tell if those retailers bet on the right horse.

At Glenbrook we’ve been following PayPal’s in-store ambitions closely – refer to these previous Payments Views posts:

• My previous post on PayPal Here: PayPal Takes on Square and the Square Wannabes
• Glenbrook’s Russ Jones: PayPal @ POS: My Field Trip Report
• Glenbrook’s Russ Jones: PayPal Thinks Big Offline: Exploring PayPal’s Seamless Shopping Vision
• Glenbrook’s Scott Loftesness: The PayPal Juggernaut

Or, learn more directly from PayPal:

• PayPal blog post on yesterday’s announcements and this follow up post with videos
• PayPal Retail Experience Videos on YouTube (the most recent was shown at the event)