Daily Dose of iQ: PayPal's Mobile Payment Video Stumbles on 2 Major Hurdles

Jun 04, 2012 — Andrew Tuplin

On May 24, PayPal announced a partnership with 15 national retailers (on top of its previously announced deal with Home Depot): 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.

The company also produced a video (below) to show how its mobile app makes it easy for both the consumer and a small business to complete a simple payment (in this case, it's a couple cups of coffee).

In the video, the payment process seems to go quickly:
a)    The customer opens a PayPal mobile app on his phone and checks in at the coffee shop. This will make him available to the barista as a PayPal billable customer later on.
b)    The customer places an order, and tells the barista he wants to pay via PayPal.
c)    The barista opens a list of checked-in PayPal customers, and chooses the customer from the list (based on his name), and profile picture.
d)    The barista issues the bill to the customer, directly to his phone. The customer walks out, with no physical exchange of money, card or receipt.

What the video does not show is what happens after the barista sends the bill to the PayPal customer.

Presumably, serveral necessary steps were omitted from the video.
- The customer needs to approve/pay the bill, or an unscrupulous barista might extract more e-cash from PayPal customers who are still checked in on the app and now sitting around sipping lattes.
- Also, unless the barista has confirmation that the customer has actually paid the bill, they could walk away without having paid for the product. In other words, once the customer pays, they’ll both stand around for another moment making awkward small talk, as they stare at their screens waiting for confirmation of payment. Sort of like old debit machines that took a long time to process payment over phone lines. 

As with all of the mobile payment apps/hardware demos we’ve seen, this one faces two major hurdles.

1. The chicken-and-egg problem hasn’t gone away. Vendors won't be keen to implement a new payment systems unless doing so will increase their sales, and customers aren’t likely to adopt a new payment method unless they see it advertised as an option.

2. The second problem is complexity. With cash or credit card, transactions are simple and take seconds to complete. If we count the number of steps in PayPal’s app, we have about six steps in total (assuming that both parties already have the app running to begin with). Once again, the cure offered by a mobile payment solution seems much worse than the disease of carrying small amounts of traditional forms of currency: paper or plastic.

Topics: Privacy, Retail Operations, Wireless Trends, Mobile Industry

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