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PayPal’s Out to Steal NFC’s Thunder

UPDATE: PayPal’s Communications Director contacted me to underscore the point I make below that the company will continue to keep NFC in mind going forward: “Our position on NFC has never changed. We consider it an interesting technology that may play a part in delivering PayPal’s goal of anytime, anyway, anywhere payments that make money work better for buyers and sellers. NFC is one of many technologies that we’re watching closely.”

As I said on Monday, after testing Google Wallet, the application’s biggest hurdle is the lack of retail locations that enable payments using Near-Field Communication (NFC) technology.

And that problem will be shared with its biggest competitor, ISIS – a joint venture between Verizon (NYSE: VZ), AT&T (NYSE: T) and T-Mobile, set to launch this year.

But a new mobile payment offering from PayPal owned by eBay (Nasdaq: EBAY) – is about to make the mobile payment industry a lot more interesting.

You see, PayPal began testing the NFC waters back in July. That’s when the company revealed a new feature to its Android mobile application that allows users to send and receive funds by tapping two phones together.

To that end, the company conducted an NFC mobile payment test in Sweden in December.

And although PayPal plans to experiment with NFC in some capacity moving forward, the company ultimately believes that the technology is a step backward when it comes to point-of-sale transactions.

That’s because it still requires users to visit payment terminals to cash out, something the company believes won’t be necessary in the future. David Marcus, PayPal’s VP of mobile, told All Things Digital:

“By the time NFC catches up, we’ll be in a world that will move away from the point-of-sales terminal.”

So how does PayPal plan to work around the technology?

PayPal Ditches NFC

Instead of relying on an NFC chip to perform a transaction, the company connects your PayPal account to your phone number and a PIN code.

When you cash out at a participating retailer, you choose the PayPal option. Enter the phone number you’ve linked to your account, punch in the PIN and you’re all set.

No need to swipe a credit card, or even take out your phone. And an electronic receipt is sent to your mobile device.

The company is certainly dedicated to this platform, considering it’s built a mini “Shoppers Showcase” to show off the technology to would-be retail partners.

Tricia Duryee, from All Things Digital, got an exclusive peek at the Showcase. Here’s her description:

“The room includes several realistic-looking facades, including a hardware store, a cafe, a grocery store and a clothing retailer. In each scenario, it demonstrates how it uses a mix of new technologies, offers and loyalty programs to make it faster and easier to and pay and stay engaged with the retailer.”

It’s a great idea. After all, what better way to get retailers on board than showing them exactly how they stand to benefit from the partnership?

But will this new payment platform be able to steal the thunder from NFC offerings like Google Wallet?

Breaking New Ground

Based on what I’ve seen so far, the technology certainly has potential. Especially because it capitalizes on the fact that many retailers aren’t equipped to handle NFC payments at this time.

A store owner might be more likely to integrate PayPal’s software into its existing systems, rather than revamping its cash registers to support NFC.

Plus, PayPal even sends you a credit card that’s linked to your mobile payment account. That way, you can pay for goods at stores that are still making customers pay the old fashioned way.

Not to mention, the company’s already making headway in online mobile payments. As All Things Digital reports…

“Last year, PayPal exceeded its own expectations, reaching $4 billion in mobile payment volume. This year, it expects to increase that to $7 billion.”

And this experience in building mobile payments online gives the company an edge when it comes to expanding its reach to brick-and-mortar stores.

Bottom line: PayPal’s unique mobile payment offering is sure to shake up the industry moving forward. And the space is only going to get more interesting once ISIS debuts its own application later in the year.

Good investing,

Justin Fritz

Justin Fritz

, Executive Editor

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