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PayPal’s Beacon may win the mobile payment war

By Owen Williams / February 19, 2014

PayPal's Beacon may win the mobile payment war

In late 2013, PayPal unveiled an all-new product called Beacon, which uses Bluetooth technology to let customers pay for merchandise in stores with nothing more than a few taps on their phone and a PayPal account. The device, which plugs into any USB port, uses a technology called Bluetooth low energy (BLE) to communicate with mobile phones in the immediate vicinity.

How does Beacon work?

If a retailer were to set up a PayPal Beacon in his or her store, customers with the PayPal app will receive a pop-up notification upon entering the store, using eBay’s “Now” platform to tell them they are “checked in”. The shopkeeper is also notified that the customer has a compatible device. When customers are ready to purchase an item, the cashier will send them a push notification to finalize the transaction via the PayPal app. Once the customer confirms, the money will be sent from the patron’s PayPal account to the store owner’s, providing a credit card and cash-free exchange.

All the retailer needs is a PayPal-compatible point of sale (there are lots of them available) and the additional Beacon device to enable payments with mobile phones. Beacon works with any device that has BLE capabilities, making it compatible with most modern Android and iOS-based phones and tablets, as well as future wearables like smart watches and glasses.

The benefits of Bluetooth low energy

The technology may sound very similar to Apple’s new iBeacon devices that were announced at WWDC in 2013, because it is. BLE is extremely powerful, as it allows users to leave Bluetooth enabled on their devices without needing to worry about excessive battery drain that could occur, like with GPS. Apple has successfully implemented this technology in all 254 of its US stores, but the payment function is currently limited to the Apple ecosystem. With PayPal’s Beacon promising to open up this convenience to all retailers, it has jumped a step ahead of Apple in the mobile payment war.

By alerting the shop owner to a user with a PayPal-enabled device, Beacon is able to quickly personalize the store experience for the user and guess what payment method the customer will use. The company anticipates that the technology could be useful in a restaurant, where instead of waiting for the server to deliver the bill to the table, customers will be able to pay instantly on their phones.

Some customers may be concerned about being tracked by such hardware, but fear not. All beacons are inherently “dumb” devices. They simply send out a signal for you to accept or decline. Until you acknowledge a beacon and give the underlying app or website permission to communicate with you, there’s no way the beacon can track you. Think of beacons (and the retailers that use them) like virtual vampires — they can’t come in until you say they can.

The idea of purchasing something without interacting with a cashier can almost feel like stealing at first, but the method quickly grows on users as they realize how fast and seamless the purchasing experience can be with such technology. Apple — despite not having a full-scale mobile payments platform — actually uses a similar technique in its physical stores.

Customers with the Apple Store application installed on their iPhones are able to purchase almost anything off the shelf and walk out, without ever interacting with a staff member. Those who have used it can likely attest to the oddity and simplicity of Apple’s EasyPay system. But unlike Apple’s version of the technology, where users have to scan barcodes to make a purchase, PayPal is able to use Bluetooth technology to provide customers with coupons and other offers through the application before they make their purchase, using a push notification to get their attention.

The power behind an open API

Beacon takes Apple’s ideas even further by allowing developers to build their own applications that integrate with the technology. The company is offering free devices to any developer who has an idea for an app that utilizes the API in a unique way. By allowing developers to tap into the technology, the company is creating a way to lock the market into the device. If developers create great experiences for the devices, they’re able to offer them to almost 132 million PayPal customers, simultaneously blocking any other mobile payment companies from entering the space.

The company suggests ideas such as using push notifications to send an interactive map of product locations in the store to the visitor or a self-checkout service in a grocery store that can be completed entirely on the phone. The possibilities are endless, and PayPal wants in on all of them. By offering the devices for no cost to developers, the company is adopting a similar technique to that of Square, which offers its reader device to stores and developers free of charge in exchange for a larger market presence. PayPal and Square both realize that the real money behind mobile transactions are the underlying fees.

The future of retail

The retail experience is rapidly changing, with new experiences being created on a daily basis. Grocery stores already allow visitors to check their own goods out using self-service kiosks, so why not let it happen on the phone instead? Credit cards are already able to make payments by simply resting it on a terminal, so why not remove the credit card and physical interaction altogether?

The mobile payment space is going to get extremely crowded in 2014, with many large players looking to build their own solutions using similar technology. Rumors point to Apple building a payment platform that utilizes the iBeacon technology it invented, and others, such as Proxima, are also building iBeacon-based solutions. Meanwhile, Google is aggressively pursuing its Wallet, which utilizes NFC to make payments.

With Beacon, PayPal has built a platform that could become the king of mobile payments, but only if it can make the devices available to the general public this year. The mobile payments space is going to become extremely heated, and PayPal’s head start will quickly wane if it doesn’t release its simple device and powerful API, ASAP.


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