The Outlook for PayPal Local

TechCrunch offers a nice overview of the recently launched PayPal Local. But there's a certain amount of confusion/hype/noise in the article worth addressing and dispelling.

The article is in part a discussion of the supposed battle between Google Checkout and PayPal. However, Checkout is very far behind PayPal -- so much so that Google may be compelled to do an acquisition in the mobile payments space if it's really serious about competing. However there is a near-term way that Checkout could compete. I'll get to that later. 

The other aspect of the article is about how PayPal now features a local directory that will potentially drive consumers/customers into local eateries and stores that accept PayPay (or Bling). Here's what it looks like: 

Screen shot 2010-11-01 at 11.50.09 AM

It's pretty basic -- and buried. Almost no one is going to be influenced to go into a local restaurant or store by PayPal Local in its present form. It will need to offer a much richer user experience than what currently exists and it's unlikely to be competitive with the major consumer apps such as Yelp or yellow pages or Google any time soon. Furthermore the availability of PayPal as a payment option is not likely to exercise much influence over consumer decision-making unless or until some significant changes happen. 

Sure, PayPal can start offering deals and discounts and that will help gain some consumer attention but probably only at the margins. 

To be sure, mobile payments are starting to gain momentum. And PayPal is certainly in position to own part of that market, given its huge installed base. But PayPal Local needs a massive consumer experience upgrade before merchants would see any benefit. 

On the merchant side, PayPal is pretty competitive with credit card issuers in terms of payment terms. If PayPal is able to acquire more merchants it will certainly help the entire proposition of PayPal Local. But among larger and more established businesses (e.g., restaurants) credit cards will be accepted and that consumer behavior will be hard to change. Sprint is offering a kind of "pass through" payment (PIN triggers a credit card), which represents consumer convenience (speed) and perhaps greater security than giving your plastic to yet another person to swipe. 

That is the model that will eventually take hold for the majority of mobile payments in my view. The carrier billing model, as presently constituted, will work for some types of small transactions but it's unlikely to win favor to replace routine credit card purchases. 

How can PayPal accelerate where it wants to go; and how can Google Checkout make itself more relevant and competitive? Either or both providers can do so by reducing their fees to merchants to speed adoption. Once there's very broad penetration among local merchants, stores and restaurants then all this starts to become relevant to consumers. Right now it's simply not. 

In addition, each could offer loyalty incentives to use their respective systems. But that implies merchant penetration as well; you can't get the incentive/reward if you can't use the system. Once again, these payments vendors need to:

  1. Reduce fees to further undercut credit card companies and drive merchant adoption
  2. Encourage consumers to use their systems for security, convenience and/or rewards