Visa Throws the Gauntlet at PayPal

by Mercator Advisory Group 0

You have to love the competitive weapon of FUD – fear, uncertainty, and doubt. Visa’s just thrown a verbal bomb at PayPal’s point of sale program with Home Depot, declaring it insecure. And while having an element of truth, it’s an accusation that can be lobbed at every electronic payment method. Visa clearly isn’t interested in seeing PayPal gain any traction with merchants. While PayPal is unlikely to convince the very largest merchants that its offer is what they need (its blended rate is just below credit interchange, not compelling enough for the top Level 1 merchants to move) PayPal’s offer could appeal to a vast swath of Level 2 and Level 4 merchants. Throwing in some FUD will dampen some interest.

Becoming a method of payment at the POS is a multi-year, evolutionary effort. PayPal appears to have the stamina required. By getting to the physical point of sale PayPal becomes a serious multi-channel competitor. Visa is just launching its cloud-based wallet,, to take to e-commerce and mobile channel merchants.

If only we could sell tickets to this contest. It’s going to be a knock down, drag out battle.

“I think there’s real issues around security,” Jim McCarthy, global head of product at Visa, said Wednesday of PayPal’s new service at a Goldman Sachs conference in San Francisco. McCarthy suggested someone could gain access to a customer’s personal information when using PayPal to make a purchase in a physical retailer.

PayPal began testing a service in January that allows its customers to make purchases with their PayPal accounts in stores instead of swiping a card or handing over cash. The customer can facilitate a transaction by typing in their mobile phone number and a personal-identification number into the merchant’s terminal. The service is currently available in 51 Home Depot stores, and PayPal expects to expand it to 2,000 Home Depot stores next month, according to Anuj Nayar, a spokesman for PayPal.

Nayar didn’t immediately have a comment on Visa’s statements Wednesday night. A spokesman for Home Depot referred inquiries to PayPal.

McCarthy gave an example of someone watching a customer entering her mobile phone number and PIN to conduct a transaction, thereby gaining access to the customer’s PayPal account. McCarthy also questioned whether PayPal has the technological infrastructure to handle a high volume of payments. “We’re now capable of doing 20,000 transactions a second in real time,” McCarthy said, adding he doesn’t think PayPal is “capable of doing what we’re doing at scale.”

This last criticism is an interesting one. There’s no doubt PayPal can’t do today what Visa is currently capable of. Why should it? Its volume is nowhere near that high.

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