Reinventing PayPal

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Swedish shoppers who wanted to buy gifts for friends from retailer Alpingaraget at Christmas were offered an incentive to do so with their mobile phones: PayPal would kick in SEK 49 ($7.35) on top of every free gift card available on Wrapp when Swedish consumers used the mobile payments service instead of a credit card to top up a present before sending it to one of their friends.

PayPal has teamed with retailers as well as with Wrapp, a Swedish start-up that offers social gift cards online and ties them to in-store purchases, in December and January as part of a push to be among the first to merge mobile payments with gift cards and loyalty and rewards programs. The aim is to make it easy for consumers and merchants to automatically merge online and offline offers, a 2013 development that PayPal says it believes will transform shopping more in the next few years than the Internet changed retail because it will impact all purchases.

The Swedish trial is just one example of how PayPal President David Marcus, a scheduled speaker at DLD 2013, is re-inventing the global electronic payment services company.

“I am aiming for an accelerated pace of innovation with delightful experiences,” Marcus, who is credited with designing PayPal Here, the company’s mobile service, said in a recent interview with Informilo. “Design is really important now at PayPal and we really want to create a ‘wow this is amazing and this is cool and we haven’t seen it before’ type of experience for our customers. It is important to bring that back.”

To that end, PayPal has been running trials around the world, including some key ones in Europe, that take a multichannel approach to consumer purchases. The next wave will see a dramatic blurring of the lines between e-commerce, m-commerce, and high-street retail. Physical retailers are expected to make consumers’ lives easier in several different ways: skipping the line, ordering remotely and picking up in-store, location-based shopping assistance, or opt-in and user profile-based service and incentives. PayPal is already trialing order-ahead capabilities at more than 30 McDonalds’ restaurants in Paris and at Jamba Juice bars in the U.S.

That is why PayPal’s cloud approach isn’t connected to a chip on a phone. It is aiming to evolve the wallet from a physical thing to a connected experience that follows consumers where they go and not only combines gift cards, coupons and loyalty cards with payment but also offers location-based and context-sensitive experiences.

For example, by scanning QR codes (like the one in the window pictured on page three) shoppers in Amsterdam’s trendy De 9 Straatjes shopping district can use PayPal to directly buy what the mannequins are wearing in the store windows with the single tap of a button on their mobile phones and have it delivered wherever they’d like.

De 9 Straatjes in Amsterdam is Europe’s first shopping area where you can shop 24 hours a day by paying with your mobile phone. Thirty exclusive shops on the street are now on the so-called QRoute, a mobile shopping route that guides you along shop windows so you can scan the products you are interested in — regardless of whether the store is open or not — and receive them at your home address in one or two workdays.

Yet another new experimental PayPal service that spans the online and offline worlds is in pilot in the UK with Aurora group, which owns fashion designer Karen Millen and other brands. If consumers buy an item of clothing on-line and it doesn’t fit they can return it to a bricks and mortar store – but only if they use PayPal to pay.

PayPal’s mobile payment service reported record usage over the Christmas holiday. Sunday, December 2, 2012 saw PayPal’s all-time-highest mobile payment volume in a single day. It beat the previous record (Cyber Monday, December 2012) by more than a million dollars. “We are making lots of progress,” says Marcus. “You are going to start seeing more product launches and new experience launches. In the months to come PayPal will be a completely different company.”

Re-injecting A Start-up Culture

Re-injecting a start-up culture in the Silicon Valley company, which was founded in 1998 by Peter Thiel and Max Levchin (both scheduled speakers at DLD 2013) is no easy feat. Marcus, who grew up in Paris and Geneva, inherited a mature company with 13,000 employees that has been hampered by what the current president calls a “complicated and convoluted” way of building products and bureaucratic internal procedures.

Externally, unhappy customers have been flooding social media channels with complaints and the company needs to fend off a crop of very young agile competitors, along with big companies like Google, which are all gunning for the electronic payments space.

So how can PayPal get its mojo back?

PayPal owes much of its initial growth to eBay users who promoted PayPal as a way to exchange money for their online auctions. When it was launched PayPal proved more popular than eBay’s in-house payment system Billpoint so in October 2002, eBay bought PayPal for $1.5 billion in stock and integrated PayPal into its services. The service was a hit with online shoppers because it took away a pain point: sellers with PayPal accounts can place icons in their auctions so that buyers can simply click on the PayPal logo when they win an auction to make an immediate payment.

PayPal, which today has over 120 million users, remains the fastest growing division within eBay – it is still growing at 20% to 30% a year. PayPal will do $10 billion in remote mobile payment volume in 2012. But as payments increasingly go mobile and the line between physical stores and digital transactions continues to blur, PayPal has started to see a new generation of innovative electronic payments competitors like Stripe and Square. (See the stories about Square and its European competitors on pages 4 and 5.)

Enter Marcus, who was 23 in 1996 when he started his first company, GTN Telecom, Switzerland’s first alternative telecommunication carrier. He later founded Echovox, the foundation for a company called Zong, which specialized in allowing consumers to pay for purchases from their mobile phone or computer by adding the payment to their wireless bill. Under his leadership Zong developed relationships with more than 250 carriers and more than 1,000 online merchants.

PayPal bought Zong in August of 2011 for about $240 million to shore up its offer in the mobile payments space. “We believe that Zong will help strengthen PayPal’s leadership position in digital goods and mobile payments, because it brings complementary technology and employee expertise that we expect will help us grow the business even faster,” Scott Thompson, then CEO of PayPal, said at the time.

That statement turned out to be prescient. Marcus became PayPal’s vice president of mobile, leading the company’s mobile business and product strategy, including the development and launch of PayPal Here and the newest version of PayPal’s consumer application. Five months later Thompson departed to (briefly) head up Yahoo! PayPal was left without a CEO and Marcus took over the top job in March 2012.

Known as a “product guy,” Marcus has placed a huge emphasis on changing the way products are conceived and designed. The resulting reorganization prompted layoffs, leading to speculation that the company is hurting. Spokesman Anuj Nayar says it is not so. “None of this was financially led — we just had the best quarter ever but when you change the way you develop products it has an effect,” he says.

Marcus’s management style is unquestionably shaking up the company. He has put up a sign in a conference room at headquarters that says “GSD,” short for “Get Shit Done,” and ordered that all of the cubicle walls be torn down so that people can collaborate in open spaces.

He is also insisting that the company refocus on customers. During the past year there was an online campaign to boycott PayPal and lots of tweets from angry customers, upset by what is seen as aggressive account-freezing by the company. “Yes there is a lot of noise out there and yes there are issues around our public image,” Marcus said in an interview with Informilo. “We can do a lot better and the way to do that is to become more customer centric.” He has made it a habit, since taking over as president, of directly answering complaints on Twitter. “I help people all the time. I want our employees to start thinking about customers to the point that they can’t sleep at night until every customer is happy,” he says.

Under Marcus, PayPal is extending its reach beyond the Web and into the physical world. Some 23 brand-name national retailers, including Home Depot and Office Depot, already accept PayPal payments in more than 18,000 stores. In 2013 PayPal will gain access to millions of stores across the United States through an agreement with Discover Financial Services.

PayPal will issue cards next year to its more than 50 million active users in the United States. They can use the cards to buy from merchants that are already part of the Discover Network, which links more than seven million retail locations nationwide. PayPal will charge retailers a fee when users pay with the new cards, and in turn will pay Discover for access to its network on a per-transaction basis.

2013 Predictions

Marcus says he is convinced that 2013 will be a watershed year for mobile and digital payments. He predicts the following will happen this year:

  • NFC will fail to gain mass adoption because consumers don’t need a different way to pay.
  • The payments, loyalty and coupon businesses will merge.
  • The cash register will go mobile, freeing sales assistants to roam the store and help customers check out and pay from the aisle or the changing room and even order out-of-stock merchandise on the spot and have it delivered to a consumer’s home.
  • The rise of context-relevant location-based shopping and payment experiences.

“2013 will be the year that we will truly see disruption in the shopping and payments space,” Marcus says on his blog. If Marcus has anything to do with it a re-invented PayPal will play a leading role in the way we will shop in the future

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