PayPal Eyes in-store Retail Customers

By April Dembosky in San Jose and California

Between the various charts and bar graphs projected on the screen at eBay’s analyst day on Thursday was
a cartoon of a woman in a shoe store. Surrounded by dozens of pairs of pumps and disheveled shoeboxes,
a weary store clerk kneels before her, cradling her foot. ‘This pair is so perfect,’ she says. ‘I can’t wait to
buy them cheaper online somewhere. What’s your WiFi password?’ Don Kingsborough, vice president of
retail for eBayowned PayPal, said the scenario plays out every day in retail stores.
The hundreds of retail executives he had spoken with in the last two years were all trying to figure out
how to get the shoppers like the one in the cartoon to buy from them and not from online behemoths like
Amazon. Mr Kingsborough said PayPal wants to win those customers. ‘Commerce is no longer about
location, location, location,’ he said. ‘New commerce is about engagement, engagement, engagement.’
His team described various applications PayPal was developing to keep smartphone-obsessed shoppers
buying at bricks and mortar stores, from loyalty programmes that offer discounts when people enter stores
to ordering apps that allow people to place and pay for food orders over their phones then pick them up in
the store without waiting in line.
The financial benefits would come not just to the retailers, but to PayPal, too, executives said. After
doubling revenues in the last three years, the online and mobile payment company is expecting to double
revenues again by 2015, up to $10.5bn. Overall revenues for the company are projected to grow 50 per
cent to $21.5bn in 2015, up from $14.1bn in 2012. Profits will grow between 15 and 19 per cent,
according to Bob Swan, chief financial officer. The focus of eBay’s analyst day was how the company
planned to work ‘with retailers, not against them’ in a world where people’s shopping habits increasingly
blend the online and offline worlds. ‘It’s an anti-Amazon play,’ said one analyst, who believed retailers
would find the various eBay technology offerings compelling in their quest to defend themselves against
the e-commerce giant.
Shares in eBay rose more than 4 per cent on Thursday, closing at $54.22, then rose further in after-hours
trading. Analyst saw the most potential for growth in PayPal. They said its strong foundation in digital
payments and its global reach position it well for taking advantage of the ‘new commerce’. ‘Building a
payments business globally is really, really, really hard,’ said David Marcus, president of PayPal. He took
a slight dig at competitors in the financial services industry or technology industry who are competing
with PayPal in building a digital wallet, including Visa and Google. ‘They don’t have the reach, scale, or
innovation,’ he said. ‘It’s easy to create buzz, but only a handful have been able to scale and build a large
payments business globally.’ PayPal now has 125m digital wallets, he said.
Several analysts raised questions, however, about whether the company’s investment in new technology
and its move into the retail world would ultimately lower margins. Concerns have been growing that credit
card companies will eventually follow the lead set by MasterCard in February and begin charging PayPal
fees for using their networks in digital wallet transactions. Mr Swan said no. He said analysts have been
asking the broader question about margins for seven years, but the details have evolved – from PayPal’s
move toward working with larger retailers several years ago, through the regulations of the Dodd-Frank
Act in 2011, to potential network fees today. But he predicted core transaction margins would in fact go
up, from 60 per cent or more to 62 per cent or more. John Donahoe, chief executive of eBay, concluded
the day by calling the technological changes in consumer shopping and merchant offerings a ‘commerce
revolution’ for large and small businesses alike. ‘Retailers are beginning to fight back,’ he said. ‘Retail is
not dead.’
Source: Dembosky, A. (2013) PayPal eyes in-store retail customers. Financial Times. 28 March. © The Financial Times Limited 2013. All Rights Reserved.

Question:
How are Paypal assisting bricks and mortar stores to compete against online-based retailers such
as Amazon? (argue in 10 to 15 lines)