|Sun May 15 2011 20:42:10|
PayPal and Visa Face off in Battle for Digital Wallet
By: Ina Steiner
PaymentsViews wrote about CEO John Donahoe's presentation at eBay's 2009 analyst day in which he stated the importance of PayPal to the company. "Just as there are leaders for each retail segment offline (e.g. Wal-Mart, Nordstrom), there are multiple winners online. Yet when it comes to Internet payments, he anticipates that there will be only one winner and that PayPal will dominate."
PayPal is very well established, and, thanks to its open platform, many companies are using PayPal in the applications and websites they are building. But I remain skeptical that just one company will own the digital wallet - after all, there are many ways to pay at point-of-sale with a traditional wallet (cash, check, credit cards, debit cards, gift cards and department store charge cards). Recent moves by established financial services firms such as Visa add to my skepticism.
In real-life, a wallet can hold many forms of payment, and payment method is often contextual. Pay for a pack of gum with cash, a gym membership with a credit card, a utility bill with a check (though increasingly with an online bill-payment service).
With a digital wallet - which can be accessed from a computer, tablet or mobile device - I believe there will also be many ways to fund online, offline and mobile purchases - debit cards, credit cards, echecks, online payment services, and other options. And the payment method will also be contextual with the digital wallet, which makes it very easy for retailers to tie payments into loyalty programs, as Starbucks is now doing with mobile payments at the cash register.
PayPal faces lots of competition from established global financial firms including credit card companies; Internet giants Google and Amazon; and start-ups; along with new technology, such as NFC chips. Keep a special eye on these players:
- Facebook, which created a subsidiary called Facebook Payments and is laying the groundwork for what could become a platform that extends beyond processing of virtual goods and developer and ad payments.
- American Express, which has launched a payments platform called Serve: "consumers can make purchases and person-to-person (P2P) payments online (serve.com), via mobile phones, and at millions of merchants who accept American Express cards. Serve unifies multiple payment options into a single account that can be funded from a bank account, debit, credit or charge card, or by receiving money from another Serve account."
- Visa, which just announced it too would be going after the digital wallet. Visa brings a formidable set of assets to the table - in its press release, Visa said it is developing next generation services by integrating VisaNet, its global processing network, with leading credit, debit, prepaid and commercial product platforms, new capabilities it has acquired through its subsidiaries CyberSource, Authorize.net and PlaySpan, and the unique expertise and services of key commercial partners.
Much of PayPal's current success came from its decision to open up its platform to third-party developers, and last October, Visa too has opened its payments network to independent developers.
PayPal felt compelled to respond to Visa's news through a post in the PayPal blog by Sam Shrauger, Vice President of Global Product and Experience: "While other companies are following PayPal's business model, we're already light years ahead. More than 98 million people around the world have already trusted us with their digital wallets."
PayPal is a major player in ecommerce as well as online and mobile applications. And research conducted by GfK found PayPal the number one trusted brand in mobile payments, beating out both established financial brands like Visa and MasterCard, as well as mobile brands such as Nokia and Apple, according to this recent PayPal blog post.
But eBay's CEO has failed to convince me it will be THE winner in Internet payments. Consumers value choice - the more ways to pay, the better for consumers - and for merchants.
A true "digital wallet" will integrate with all viable payment methods so consumers can continue to choose how to pay depending on the context of the transaction.