Why PayPal Doesn't Care About NFC

Some of SXSW's hottest startups say they're here to help small businesses compete, but eBay execs say those merchants want something else entirely.

You'd think that wave-and-pay smartphone technology would be top priority for PayPal, one of the biggest competitors in the mobile payments space. But while big retailers love NFC for its hyper-targeted marketing potential, small businesses that run on payment services like PayPal may actually be interested in mobile payments for something far humbler: customer loyalty.

"The problem with NFC payments is that they don't do anything to help generate new leads," says Laura Chambers, Senior Director of Paypal Mobile. They also don't do much to encourage repeat business, she says. PayPal services about 9 million merchant accounts, many of which are mom-and-pops who don't want the expense of credit card terminals from a big company like Verifone. She says those merchants are ambivalent about how a customer pays—as long as they come back with friends and do it again.

Like some kind of old-fashioned natural resource, small businesses are being mined by many of SXSW's hottest companies with little discussion of what those small businesses actually need. Desperation for foot traffic has lead merchants to experiments with tools like Groupon and Foursquare promotions, which may bring in temporary spikes in sales but don't typically encourage real growth. Scvngr, perhaps the hottest startup at SXSW this year, has endeavored to fix this "loyalty problem" with sophisticated game mechanics, but eBay says it can get small merchants better results without getting all philosophical about human behavior.

EBay's solution is the humble QR code: a cheap and common successor to the barcode of yore. Late last year the auction giant acquired RedLaser, an iPhone and Android app that lets smartphones scan QR and UPC codes on retail goods to compare prices at brick-and-mortar and online retailers.

Rob Veres, eBay's General Manager of Redlaser, says that the company's recent QR pilot program with Atlantic Records has already proven that QR codes can create leads and drive sales, but he believes what small businesses really want is rewards programs that work as well as major retailers'. "The big guys already have their loyalty plans, but smaller businesses don't," says Veres.

EBay plans to change all that by taking a loose approach to geo-targeted discounts. Instead of requiring people to physically show up and "check in" to get deals, as on Foursquare, Veres says merchants can instead stick QR coupons in advertisements around town. Once captured by a user, that QR code can instruct the user's phone to show information about the shop or product, search for price comparisons or ratings, or even initiate a purchase over the phone's data connection.

The loyalty program would rely on a user's eBay account to track which QR codes a customer clicks, and his or her PayPal account would be able to use past purchase history to target incentives, rewards, or loyalty coupons. Chambers admits that PayPal's rewards programs are still a work in progress, but once the company launches the program, it will have a massive database of user profiles at the ready. EBay says its apps have been downloaded a collective 33 million times and generated $2 billion in sales in 2010.

Just last week, RedLaser quietly launched merchant accounts to let small businesses create their own QR codes. As for the rewards programs, he says, they'll iterate slowly. "We're learning that we need different solutions for different sized customers." Once the auction giant rouses, location startups who've been pushing more reductive rewards programs may have a serious problem.

[Image by Tom Purves]

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3 Comments

  • Fred Price

    Paypal ripped me off. They kept money of mine after i had a "stellar" (Their words) 10 year premier account with them. Because my drop ship wholesaler waspaperless and wouldn't verify inventory. however all products were delivered perfectly. Since they owned Ebay, i pulled my store off there. They are idiots and thieves. I use virtapay, Trialpay and Alertpay now for my ecommerce solutions and am so happy.http://www.make-money-on-internet-rev...

  • Katie Despres

    Interesting perspective from EBay...with all the movement from Apple and Google this week, it seems like the battle for mobile payments is really heating up. I think the biggest piece of the puzzle here is seeing what consumers will adopt and the value that they can get out of using mobile payments, be it personalized deals or coupons and discounts; until we see a compelling case for mobile payment adoption, I think we'll continue to see many different approaches by retailers, credit card providers, wireless providers and handset makers!