Discover and PayPal Join Forces

Discover Financial Services (NYSE:DFS) and PayPal, an eBay (NASDAQ:EBAY) company, are getting a lot of attention after their Wednesday announcement that they are joining forces to enable merchants to accept PayPal at over 7 million U.S. locations, and potentially millions more internationally later. This is another step in the rapidly changing world of how customers and merchants interact. A host of players – from relatively new start-ups like Square, Inc. (which recently entered into a Starbucks Corporation (NASDAQ:SBUX) to a consortium of retailers including Wal-Mart, Target and Sears) – are fighting to be major players in this space.

 

Discover is probably best known for its Discover Card, but it also offers a broad range of banking services from personal back accounts to home loans. Its payments services include an ATM network, a global payments network that includes third party debit and credit cards, and Diners  Club International – and of course the Discover Card.

 

PayPal was the pioneer in online payments and has expanded its services to enable customers to pay in person, offline and by using their smartphones.

 

When the service is available in 2013, participating Discover merchants will be able to accept PayPal payments without having to add any hardware or software. For PayPal, which already has a program to allow customers to make PayPal payments in physical stores such as Home Depot, this agreement will expand its merchant base exponentially in a very short period of time.

 

Discover will be able to leverage its banking and payments capabilities – and will become a major player in the merchant payment revolution almost overnight.

 

Most of the new systems being developed go beyond merely making payments. They can be used for advertising, the offer of discounts and coupons, loyalty programs and store location information. For consumers, they offer the promise of increased convenience – and information about products, store locations and available promotions. For merchants, they offer the promise of better targeted advertising and promotions along with (hopefully) increased customer loyalty and reduced payment processing fees. For many smaller merchants, even now these new systems can make the difference as to whether they can affordably/practically accept credit/debit cards or other electronic payments at all.

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