Three Trends That Might Transform the Retail Payments Experience

David Marcus, President, PayPal

April 25, 2014

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At PayPal I have the opportunity to see a lot of new technologies before they're ready for prime time. Some we create, others are created by other companies in various industries. I do my best to save enough time away from the corporate side of the job to spend as much time as I can geeking out on these new technologies and charting the future with our amazing teams. Lately, I've been looking at three technologies that might truly change the retail experience as we know it.

The Advent of Bluetooth Low Energy (BLE)

I’ve written about this in the past, but the proliferation of BLE chips in devices will enable the industry to create very precise, fast, and secure shopping and payment experiences that are both location and context relevant. We're big fans of BLE at PayPal – so much so that we created our own Beacon. PayPal Beacon is different from other beacons because it's connected to the Internet, enabling you to pay hands-free even when your phone data connection is poor or non-existent. I truly believe that in a lot of shopping environments, we shouldn't line up to pay at a specific location. We should be able to grab what we want and go. Beacons combined with our nearly 150 million active customers should enable that at scale as we roll this technology out.

NFC HCE

For years I've been saying NFC was a technology in search of a problem, designed and embraced by companies thinking about their own interests rather than solving a problem for consumers. Year after year, at the Mobile World Congress, the industry has been issuing press releases about the advent of NFC the following year. And year after year, I've been very vocal about NFC not becoming mainstream. So far I've been right. Have you ever seen a consortium of mobile carriers, banks, OEMs, and associations, who each want a piece of the action delivering a good consumer product experience? Me neither. The crux of the issue of the original approach of NFC was the Secure Element. The Secure Element, as its name indicates, is meant to keep financial information secure. The problem? Everybody keeps fighting over who gets to control it, because the entity that controls it becomes the toll master for every transaction that takes place. This led to interesting battles between financial institutions, OEMs, and carriers. And this is main reason why Google Wallet on NFC only launched on the Sprint network. The other carriers wanted their own solution, ISIS, to be the only one available to their subscribers.

But something changed late last year. The Android team at Google started supporting and pushing another standard (not exclusively for payments) called NFC HCE, or Host Card Emulation. The beauty with this move is that it doesn't require the whole industry fighting over control for the Secure Element. The Android team approached us with this initiative late last year to collect our feedback on implementation. For the first time ever, I saw a glimmer of hope for NFC in some shopping configurations. Those where you need to be at a specific place in the store to pay — think multilane grocery vs. the Apple Store experience of paying wherever you are. Two more events are worth noting. One is the accelerated pace to move to EMV — chip and PIN vs. mag stripe on a card — since the major credit card breaches with large retailers, which will lead to more NFC-enabled terminals by 2016. And the second one is Visa embracing the HCE approach. It's worth noting that our approach to security is somewhat different, as we don't share your financial information when you shop.

The bottom line is that I'm moving from being a massive skeptic of NFC, to being cautiously optimistic on NFC HCE take-up in very specific shopping use cases. But I still passionately believe that paying hands-free through a BLE Beacon and notifying the merchant you're in the store through that method will enable more transformative experiences for consumers and retailers alike.

Smartwatches and Wearables

We live in a world of notifications. Apps of all kinds are fighting for our attention all day. And one of the things that struck me after playing with smartwaches quite a bit, is how it is the absolute best device for managing and responding to notifications. For example, we have a pilot running in our on-campus Starbucks that combines Beacon, with an app built for the Samsung Galaxy Gear 2, and Gear Fit devices. Walk into the area covered by the Beacon, your watch notifies you you've checked in, the barista greets you by name because your photo shows up on the point-of-sale system, and when she rings you up, you get another push notification. Tap on the watch to confirm the payment, and go. This is one of the most transformative payments experiences I've had. No wallet. The phone never leaves my pocket. And I'm in control.

In the next 2 years, I believe we're going to see more and better smartwatches hit the market (maybe a major new one this year?), and I'm now convinced the Swiss watch industry is going to be in trouble. And it pains me, being a lover of beautiful automatic watches. But the utility and functionality of smartwatches will be a tsunami for that industry if they don't adapt very quickly. All smartwatches will have a Bluetooth Low Energy, some may have NFC, which combined might make these devices the ultimate in-store payment instrument.

So will it be one technology winning over another? No. This is not, and has never been, about technology. It's about building amazing shopping experiences reinforcing the human connection in the retail environment. It's about combining a digital wallet in the cloud with whatever technology makes sense in the right context, and keeping customers safe at all times.

These are very, very exciting times where we get to redefine how hundreds of millions of people will move to the digital age of money. I can't wait to unleash some of these great products and innovations to our customers around the world.