PayPal’s Deal With Discover Gives It Scale, but Will Consumers Come?

PayPal announced a deal with Discover this morning that gives the online company an enormous opportunity to get a foothold in the offline world.

However, that’s just one side of the equation. To be successful, it will also need to get consumers excited about using its in-store payment offerings.

“If you build it …” goes the “Field of Dreams” philosophy. But will they come?

“That’s ultimately the question that they need to solve,” said Rick Oglesby, an analyst with Aite Group. “PayPal has achieved merchant coverage, as far as Discover goes, but on the consumer side, they have 50 million active users and very few of them have the ability to transact in the store.”

Initially, consumers will have to sign-up for a Discover-backed and PayPal-branded credit card, which does little to slim down the number of items consumers are carrying around in their wallets. Later, consumers will also have the option of paying by entering their mobile phone number and PIN at the terminal.

Clearly, having a registration requirement of any kind will slow adoption, especially since the easiest option will be to continue using cards or cash.

But there’s also the question of whether consumers trust PayPal enough to be the brand they use to make everyday purchases, from gas to groceries to clothing. The company has been around long enough to gain significant brand recognition, but in that time, the online payments pioneer has also accumulated a bit of baggage.

Almost anytime I write about PayPal, commenters voice their dislike for the eBay-owned company. From today’s post, one person complained: “PayPal is one of the worst companies to deal with. I’d rather pay with pretty much any method than PayPal.” Another said, “I like Discover, but hate PayPal with the fire of a thousand suns. To be honest, this agreement sours me on Discover a bit, just because PayPal is so anti-consumer.”

The brand also continues to be tarnished by a constant stream of negative media reports — even if they appear to be coming from a vocal minority.

A New York Times story earlier this month highlighted several horror stories from recent years that made consumers and businesses think twice about using PayPal. And sites like PayPalSucks.com, and its accompanying Facebook page, provide forums where consumers can rant. (The PayPal Sucks Facebook page has 83,500 “likes” compared to PayPal’s own Facebook page, which has 324,000.)

There is no doubt that PayPal is fully aware of this problem and is actively working on solutions.

In a recent blog post, Katherine Hutchison, the head of risk management for the Americas at PayPal, recently addressed one of the chief complaints from businesses regarding the freezing of funds in their accounts.

“We understand that it’s frustrating as a seller or small business to have delayed access to your money and feel like you don’t understand why,” she wrote. “We work to communicate this effectively through various channels (emails, customer support, web site and policy terms) but we understand that sometimes you’re looking for more from us.”

But at least PayPal is there to answer the phone when a problem does occur, which is more than some tech companies can claim. Based on the most recent information available, PayPal said it has 17 operation centers worldwide, staffed by 6,000 employees who speak 15 languages and answered an average of 64,255 calls and 16,670 emails a day in 2010.

To be sure, there was at least one entity that thought the deal had potential: Wall Street.

Today, both Discover and eBay hit new 52-week highs. At the close, eBay was at $47.00 and it continued to climb after hours. Discover closed at $38.43, then slipped back a bit after hours.


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