PayPal Will Expand In-Store Payments

By Danielle Kucera - Jan 21, 2012 7:59 AM GMT+0700
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PayPal Inc. signage is displayed at the company's shopping showroom in New York. Photographer: Michael Nagle/Bloomberg

EBay Inc. (EBAY)’s PayPal e-commerce payment business plans to let shoppers pay with its service in more than 2,000 Home Depot Inc. stores by March, part of an effort to win away customers from credit-card companies.

The company began a trial with shoppers this week in 51 of Home Depot’s home-improvement stores, primarily in the San Francisco area, said Anuj Nayar, a spokesman for PayPal. It intends to extend the offer to all national locations, or about 2,200, he said.

PayPal, the fastest-growing part of EBay, aims to maintain that expansion by moving into the offline world, challenging Visa Inc. (V) and MasterCard Inc. (MA) on their home turf. While EBay says payment volume from in-store terminals will be “immaterial” to next year’s financial projections, it expects to profit from the shift during the next three to five years.

“Longer term, this could move the needle for PayPal, but right now it’s still in testing mode,” said Herman Leung, an analyst at Susquehanna Financial Group in San Francisco. “You will have to see a larger commitment from Home Depot (HD) than the 51 stores to truly incentivize the consumer to use it. There’s a little bit of a customer adoption cycle that needs to ramp.”

PayPal also is seeking new leadership. EBay Chief Executive Officer John Donahoe is serving as interim president of the division following the departure of Scott Thompson, who became CEO of Yahoo! Inc. (YHOO) this month.

More Retailers

The in-store service introduced this week lets consumers purchase items at checkout with a PayPal card or with a phone number and pass code. PayPal will hold trials with 20 more retailers by the end of this year, Nayar said.

EBay reported fourth-quarter sales and profit that topped analysts’ estimates, boosted by PayPal’s growth and an expansion of its retail offerings. Revenue at PayPal helped San Jose, California-based EBay reach sales of $3.38 billion in the period.

Still, growth at the payments division slowed from the previous quarter, down to 28 percent from 32 percent. PayPal’s mobile payment volume will rise to $7 billion this year from $4 billion last year, EBay said this week.

EBay shares climbed 1.3 percent to $31.93 today. The stock rose 9 percent in 2011, marking its third straight year of gains.

EBay also has created a so-called mobile wallet that stores credit- and debit-card information from a range of providers, giving the company control over the experience. It plans to offer users the option to choose which payment system they want to use as many as 30 days after the sale.

“This is the beginning of a fundamental change in the company,” Nayar said. “What we are finally rolling out will ultimately be, in part, an international phenomenon. It’s a change in how retailers and consumers are going to connect.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net