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Investment analysts are asking questions about PayPal’s point-of-sale strategy leading into eBay’s Investor Day Thursday. Investors are seeking answers about the potential drag on profitability from increased costs including lower discount fees from merchants, add on fees from the card networks, and rewards’ expense. The main question is whether PayPal can motivate consumers to use their PayPal account at the POS fast enough to turn a healthier profit.

From a Reuters article:

Even without pressure from MasterCard and Visa, PayPal’s Point-of-Sale, or POS, business as it is known, will be less profitable than its online business, according to analysts. PayPal has signed up several large retailers, including Home Depot, Toys ‘R’ Us and JC Penney, to accept PayPal in their stores. However, PayPal is taking a smaller cut of sales to persuade these retailers to test the service. PayPal’s POS business is only 30 percent as profitable as its online business, Brian Nowak, an analyst at Nomura, estimated in a note previewing eBay’s investor day.

PayPal’s rewards strategy might not move the needle with widespread mobile payments still lacking. U.S. consumers have become very savvy discount shoppers since the great recession and Mercator Advisory Group’s data indicates that when it comes to mobile payments, consumers look to financial institutions and card network brands as trusted service providers. It appears that the investment community is running out of patience, which could set the company up for a spin-off sale as it finds itself unable to get over the significant barriers to introducing a new acceptance brand at the in-store level.

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