But a month later, both PayPal and its parent company eBay say they have the depth of leadership necessary to execute its plan to enter the world of in-store payments.

In an interview, David Marcus, PayPal’s VP of mobile, made the case for why its mobile payments strategy will prevail in a market surrounded by incumbents like Visa, MasterCard and American Express, as well as new entrants like Google.

On the matter of Thompson’s departure, he downplayed the role of one executive.

“The strategy wasn’t one man’s thing,” he argued. “It was a shock for 24 to 48 hours, but we control our destiny, and it’s about execution now. So far, so good.”

In addition to speaking to Marcus and several other executives, AllThingsD got an exclusive look at the company’s newly constructed “Shopping Showcase,” which will be used to demonstrate to potential partners how it envisions next-generation payments will occur at the register.

From the ground floor of the company’s San Jose headquarters, it has built several realistic-looking facades, including a hardware store, a grocery store, a clothing store and cafe; users can walk from one experience to the next. I also tried out the experience of making a real purchase at Home Depot, where it is currently being piloted at many San Jose-area stores. (See the slideshow here.)

To be sure, Thompson’s departure was abrupt. He gave PayPal only 15 hours’ notice before the planned announcement that January morning by Yahoo.

But the company now maintains that its strategy for the next two years had long since been cemented, making it much easier to absorb the blow.

Over the next few years, PayPal will be trying to take its online relationship with 106 million consumers worldwide into the physical payments world, by extending its digital wallet services to cash registers at grocery stores, hardware stores and other retail locations.

It plans to do this through a series of different technologies, including PIN codes, credit cards and other services.

Meanwhile, other providers are trying to attack the market using near field communication, where users will tap their mobile phone at the register in order to pay.

Google, Visa, MasterCard and a consortium of wireless carriers, including AT&T, Verizon Wireless and T-Mobile, are all working on similar solutions, which will require retailers and consumers to upgrade their point-of-sale technology and mobile phones, respectively.

“Yes, NFC will be useful, and we’ll be there, but today we are trying to do more than replace swiping with tapping,” Marcus said.

He envisions shopping becoming a more fluid experience. Today, you pick out the items you want, place them in your shopping cart and then stand in line at the checkout.

But in the future, he asks, why couldn’t that change? What if you paid for items in the store’s aisles, or purchased them online before picking them up in the store?

NFC can be restrictive, because you have to be at a physical location in order to tap a terminal and pay.

The scenarios are possible, given how fast things are already changing.

Last year, PayPal exceeded its own expectations, reaching $4 billion in mobile payment volume. This year, it expects to increase that to $7 billion. One of those purchases last year was a $40,000 backhoe, which someone bought using PayPal on their phone.

“By the time NFC catches up, we will be in a world that will move away from the point-of-sales terminal,” he predicts.

As with PayPal’s traditional business, it expects to make money on fees, also called the interchange rate, which the retailer is responsible for paying. Its goal is not to provide a cheaper solution than the incumbents. Rather, it wants to provide other perks that will help retailers and provide incentive for the retailers to want to work with PayPal.

Such perks could include platforms that will allow the retailers to offer loyalty programs, shopping lists, credit options or coupons.

“If you add a payment method that adds 30 to 40 percent more volume [in business to the retailer], then the interchange doesn’t matter,” Marcus said.

Completed two weeks ago, the showcase is designed to woo major retailers and other potential partners that may be considering adopting PayPal’s mobile payments services.

The room includes several realistic-looking facades, including a hardware store, a cafe, a grocery store and a clothing retailer.

In each scenario, it demonstrates how it uses a mix of new technologies, offers and loyalty programs to make it faster and easier to and pay and stay engaged with the retailer.

What you won’t see is demonstrations of near field communications, which is a technology being used by many of its competitors. (To learn why it is not using NFC, read an interview with PayPal’s VP of Mobile David Marcus, coming later today.)

I also visited Home Depot in San Jose to buy something using my PayPal account. The service is now live at many of the Bay Area hardware stores.

Today, PayPal is one of the leading online payments companies, with 106 million users worldwide; but this year, the eBay-owned company is attempting to move offline, by partnering with retailers like Home Depot and other major chains to be announced later this year.

Here are the photos from the Shopping Shopping Showcase and Home Depot shopping visits:

View the slideshow

The yellow-handled hammer, which the eBay CEO purchased at Home Depot using PayPal, signals that the company’s plans for entering the mobile payments business has entered the construction phase.

In an interview yesterday, Donahoe provided a few details about the company’s Home Depot trial and how it would expand from five to 51 stores across the country over the next week.

He also talked about his own experience of buying the tool earlier that morning. (Seen at right: Donahoe wielding his hammer.)

The company also announced fourth-quarter results yesterday, solidly beating both the company’s internal guidance and analyst expectations.

One of eBay’s big initiatives over the past year has been to find ways to work more closely with physical retailers by providing them with the technology they need to operate more efficiently online and offline. Over the past year, that has included buying 13 companies, for a total investment of $3.4 billion.

“We are right at the intersection of something that’s really cool,” Donahoe said. “This isn’t something that everyone sees, like social networking three years into it, when only the early people knew about it.”

What everyone is not seeing, he explains, is how retail and payments are two massive industries that are “at an inflection point where they will go through dramatic change.”

One major opportunity is payments being made at the cash register, and arguably many others see it, too, including Google, Visa, MasterCard and the wireless carriers, which are all working on their own solutions.

Interestingly, Donahoe was willing to put a price on it — and it’s huge.

If eBay is able to capture just 2 percent of the sales occurring at the point of sale, it will be able to double PayPal’s $70 billion business today. If they capture 4 percent, they’ll triple it.

Of course, that will take some time.

This year, eBay is focused on learning and testing out the technology in several trials; then, in 2013, it will begin to scale the business. In 2012, the company is not even factoring in a lift from point of sales in eBay’s revenue guidance.

The company’s big test will start later this week, when it expands its trial with Home Depot from five stores in the Bay Area to 51 stores in the Bay Area, Atlanta and Omaha.

Everything continues to be on track, despite the unexpected departure of PayPal President Scott Thompson. Thompson shocked Donahoe right after the New Year with the announcement that he was leaving to become CEO of Yahoo.

Donahoe declined to give an update on his plans to replace Thompson, saying that he was fine with serving the interim role in the meantime, and relying on the rest of the team PayPal has in place.

So far, Donahoe said, the mobile payments technology works flawlessly, based on his own experiences, but there’s still some additional scenarios they will have to consider.

Yesterday morning, he drove to a store in San Jose, where he consciously left his wallet and phone in the car.

He walked through the aisles to find a hammer and tape measure, and then went to check out, where the terminal gave him the option of checking out with PayPal. He entered his mobile phone number and PIN, and the transaction was completed, with the receipts sent to his phone and email.

“It was faster than swiping the card,” Donahoe said. “This is an advantage that PayPal has. No one else can do it with a mobile number and PIN. There was no fancy whiz-bang technology.”

Customers will also be given the option of paying with a PayPal credit card.

But not all the pieces are in place yet.

Coming soon: Users will be able to store their loyalty cards in their PayPal wallet, and will be able to receive personalized offers based on their shopping habits.

Also, it’s worth noting that while Donahoe checked out easily, there will be a learning curve for others. In advance of going to the store, users will have to associate a phone number and PIN with their account, and enable their account for in-store checkout.

Right now, there’s no contingency plans for if a person doesn’t have a PayPal account, or if it’s not set up. In fact, a very small percentage of the more than 100 million PayPal users have likely done that.

“That’s exactly why I say this is the year for trialing and learning,” Donahoe said, appropriately adjourning the interview with a bang of the hammer.

The odds are stacked against Dwolla.

It believes it has found a way to build a payment network that runs on cash and eliminates the costly fees associated with credit cards.

It is those fees, called interchange rates, that make other companies, like Visa and MasterCard, a ridiculous success.

To disrupt the system, the Des Moines, Iowa-based company is building a digital wallet that allows people to pay for an item at a store or in person (like the babysitter) using the Dwolla mobile application.

Today, it rolls out a new part of the system, which it hopes will financially support lower interchange rates for merchants.

The hitch is that instead of the entire burden being on the merchant, like it is now, consumers will be expected to pay for what they use. It would sort of be like a bank charging for checking (and we know how well that goes over).

Ben Milne, the founder of Dwolla, believes that if the costs of the system are transparent then people will understand why they have to pay. “There’s a cost to the network and we think everything should be apparent and upfront to everyone,” he says.

So far, there are two critical pieces of the operation.

The first one rolled out a few weeks ago and makes any transactions under $10 free to the merchant. Normally those transactions are cost prohibitive to merchants because they have to pay around 2.75 percent per transaction. On small purchases, that can be their profit margin.

The second part of the system rolls out today, and explains how Dwolla believes it can make money even when it doesn’t charge for small transactions.

The feature is called “Instant.”

It will allow Dwolla users who sign up for it to have access to cash immediately.

The company doesn’t mean the kind of money that folds, but rather allowing the free exchange of money between people and merchants without any fees — like cash. Think of it as a little bit like PayPal when there’s no fees.

Here’s how it works:

Users sign up for Dwolla and link it to a bank account.

They pay $3 a month to get access to cash immediately instead of having to transfer money from their account to Dwolla each time they want to use it, which can take two or three days. Users will have a credit line of up to $500. If they fail to pay off their balance at the end of the month, they will be charged $5. The subscription can be turned off at any time.

In the system, any transactions over $10 will cost 25 cents, which is paid by the merchant (or a person can volunteer to pay for it, which happens sometimes if it’s a donation).

The feature is even more important on the back end because it brings down a merchant’s cost of accepting credit. Instead of paying upwards of 2.75 percent per transaction, merchants will pay zero for purchases under $10.

Dwolla is working with TMG Financial Group in order to be able to extend the line of credit to its users.

The system may be a tougher sell to consumers, who are currently showered with free accounts and other incentives, like airline miles, for using credit cards.

Generally, Dwolla is part of the bigger trend of payments going digital. Google, Visa, MasterCard, cellphone carriers, American Express, PayPal and a host of other start-ups believe in the value of making money more accessible and losing the legacy form factor of a plastic card.

If consumers do buy into what Milne is trying to do, it still might be difficult to actually use.

The company is tiny. It has roughly 15 employees, 70,000 users and is live in up to 4,000 locations in the U.S.

Dwolla’s Ben Milne knows the odds and is still optimistic.

“Life is a hustle, and it’s not going to be easy to build these things. But we weren’t in rooms last year that we are in today, and the size of the financial institutions we are talking to right now are large companies.”

In an interview, Doug Bergeron explained to AllThingsD the reasoning behind the spending spree, saying that the company is undertaking a major transformation that requires selling software and services — not just hardware.

Only two weeks ago, VeriFone agreed to acquire Point, a major retail payment provider in Europe, for $817 million (not including $230 million in debt). Two weeks before that, it picked up Global Bay, a smaller company that helps retailers connect their e-commerce assets to physical stores through the use of iPads. Terms of the deal were not disclosed.

Additionally, a year ago, it agreed to buy payment security provider Hypercom in an all-stock transaction valued at about $485 million, including debt.

The three acquisitions easily push the company’s investment above $1 billion. A bet of this kind represents a substantial risk, but Bergeron believes the decision to turn into a services company was a no-brainer, even calling it “obvious.”

The San Jose company, which has about 3,000 employees globally, has a history of growing through acquisitions stretching back to 2005, so maybe it can pull it off. In its fiscal 2012, the publicly-held company is projecting it will make a profit of up to $2.50 a share on revenues of up to $1.72 billion before the Point merger is taken into account.

Earlier this year, VeriFone appeared on the defensive, after Bergeron attacked San Francisco-based Square for not providing encryption in its mobile card readers. Since then, Square has promised to add another layer of protection, although the rollout is still pending.

VeriFone now seems to be on the offensive, having figured out what role it will inhabit as mobile payments come increasingly into play. And despite Bergeron’s earlier outcry about Square, he says the company will play “the role of Switzerland,” and will be neutral about which technology will win.

In particular, VeriFone wants to be the software developer that makes all the new innovations — including Google Wallet, PayPal, ISIS, the carrier-led initiative and others – work with a retailer’s existing systems. Since retailers have limited resources for technology, he believes this will be an important role.

Here are excerpts from my interview with Bergeron, who is not modest in calculating the opportunity in front of VeriFone.

What was the thought process behind the acquisitions?

Broadly speaking, VeriFone has a very impressive market share at the point of sale, and now worldwide with Point. We see the most signficant dynamic shift taking place is the new complexity that’s hitting the point of sale as a result of all the innovation that’s taking place.

It means transforming VeriFone from a focus on the best in products to both products and services. We will be delivering payments as a service. Retailers want to take advantage of Google Wallet and the iPad, and brick-and-mortar stores want to connect with online stores through multichannel integration. But these retailers don’t have 100 people on staff capable of integrating. They can either be left behind and not participate, or they can reach out to a partner to co-manage the increasing complexity at the point of sale.

Global Bay is providing software for tablets that basically allows for integration with inventory systems and e-commerce solutions and other types of services that the market is going to demand. At the end of the day, the retailers don’t want to lose a sale, and if they have someone ready to buy something, like women’s apparel or jewelry or apparel of any type or home repairs, where there’s a dialogue in the store with the customer, they want to upsell or make sure they leave with more than they would otherwise.

Otherwise, it’s hard to compete with Amazon, which has massive distribution centers across the country. But if small or large retailers can leverage their corporate distribution centers, then they have an advantage over Amazon. They have the touch factor with the person [in the store]. It’s a new age that has arrived for multichannel retail, where brick-and-mortar meets e-commerce. That’s what Global Bay is doing so well.

So you are evolving from a hardware company to a services company?

I’m going to edit your question.

We don’t produce hardware. It’s manufactured by third partners, and our product comes out of a $130 million R&D budget, of which $110 million is software.

For VeriFone, 90 to 95 percent of revenue has been product, but over the past two years, we’ve stepped up our services business with encryption and content at the point of sale.

In the fourth quarter, the quarter we are about to report on, we are projecting that services will be 22 percent of our business, and that’s on top of the total business growing dramatically. By the end of 2015, we think we can get it to 50 percent.

With the Point acquisition, which is all services — or close to it, at 88 percent — we’ll now be in the low-30s percentage.

I’m pretty sure, but for the most simple requirements, we’ll say [to the retailer], here’s the products, here’s all the boxes, and then check all the boxes for things you want, like Google Wallet, encryption; or do you want to support gift cards, or multichannel sales through the Global Bay capability?

You have a good perspective on the wide range of mobile payments that are rolling out. How many of these technologies will make it?

What I don’t know is what are the next types of innovations coming out of the Valley or other places.

Everything looks good on YouTube, or in a standalone trial, but if you have to roll it out to thousands of stores — and 50 lanes in each store — whatever new that’s out there has to coexist with the old stuff.

Who’s going to do that and the integration, and who’s going to manage the software updates? It certainly can’t be the two guys in IT, because they don’t have the resources.

How slowly will these rollouts occur? When you put it that way, it seems impossible for retailers to adopt it very quickly.

I think things move deliberately, not slowly.

That’s a bit of a wake-up call to those who come out of the online world and think they can put some code up in the cloud and it works. But when you talk to Costco, Macy’s or McDonald’s, which are all our accounts, they are innovative. They’ve rolled out pin debit or cash back, but it goes through a process of quality assurance, and they have labs where they test all this stuff, and then methodically move it out.

National retailers will have to get on board. They are the ones that move mindshare. They want the same experience in every store in every city in every state, and to mass deploy that, it takes a fair amount of planning.

How many new providers will make it?

There’s no question there will be a few, but it’s not limitless.

There’s a limit to the amount of change and chaos that the important retailers are willing to deal with at any given time. I’m describing a situation why VeriFone is so important. They [the retailers] love the meetings with PayPal and Google and ISIS, but all of this stuff has to coexist together.

In a lot of ways, we are playing the role of Switzerland. We are supportive and encouraging of all the innovation. We are the systems-agnostic guys that are operating on behalf of the retailers.

But all of these things would require software. The things that Google is trying to accomplish integrates with back-office systems at the SKU level. If it was just throwing hardware at the problem, it’s one thing, but it’s software.

You’ve talked about the importance of Global Bay, but now let’s talk a little more about the Point. Why was that acquisition important?

The data is out there. It’s a company that has grown fivefold over the last eight years, and is precisely located in the geographies in Europe that are A) healthy, and B) prone to be the first movers of mobile payments.

That’s where the Point lives and breathes. They have massive market share using VeriFone solutions, and more than half a million merchants in Northern Europe and the U.K. are using them to manage services that are largely around keeping EMV, which stands for Europay, MasterCard and Visa, up to date. EMV uses chip technology instead of swipe technology like we do here in the U.S.

They took out all the complexity of managing EMV and provided them [retailers] a monthly managed service. It’s precisely that framework and model that will allow us to turn the lights on for PayPal and Google Wallet and other services. The Point has been very much ahead of the pack, rolling out NFC capabilities before retailers have asked for it. This can be very exciting for Google and others, because it can enable a rapid deployment capability for any of them.

Are you going to make any more acquisitions? 

We are busy integrating right now. I don’t think you’ll see anything sizable for quite some time. For the most part, we are done with Hypercom, and waiting to do integration in January for the Point. For the most part, it will be independent. I think we have a lot of tools in the shed to help to find a new VeriFone.

The machines let people pay by tapping their credit and debit cards instead of swiping them. But they didn’t seem to work and wound up frustrating customers, said Mr. Jordan, who owns a DQ Grill & Chill in Middletown, Del.

“Ultimately, I guess we’ll throw them out,” he said of the “contactless readers” that were installed several years ago. For now, they are tucked out of view, gathering dust.

Read the rest of this post on the original site »

But in this game of one-upmanship, Square has thrown down the gauntlet by announcing this morning that it has made the payment process hands-free.

The San Francisco company, which was recently valued at $1 billion, said it has made it as easy to pay as saying your name.

A new version of its application, called Card Case, will leverage geo-fencing capabilities in Apple’s latest operating system update for the iPhone. The technology will identify when a person is within 100 meters of a favorite merchant.

Square’s Director of Products Megan Quinn explains that when a shopper is within range, a tab at that establishment will automatically open — without that person ever touching his or her iPhone. Once the user places an order and goes to pay, all they have to do is give their name.

The merchant will see on its iPad that a tab has been opened in that person’s name from inside the Square app.

Once a customer gets outside of the 100-meter range again, the tab will automatically close, whether a transaction was conducted or not. In theory, this means it would only be open for a few minutes if the shopper simply walked by a coffee shop and didn’t stop.

In addition to having to have an iPhone with the latest operating system, the consumer will also have to designate shopping establishments at which tabs could be automatically opened.

Since Square opened it up eight weeks ago, 20,000 merchants nationwide have joined the Card Case app’s directory.

In May, Square unveiled its mobile payments strategy for small retailers, including the iPhone and Android applications for consumers and the iPad software for merchants. Before that, it had focused primarily on allowing small businesses to accept credit cards using a swipe accessory plugged into a smartphone’s headphone jack.

Quinn said the most obvious benefits to the new features are speed and ease of use; however, there’s a more touchy-feely reason, too. “We’ve removed the artifacts from the experience, so it’s about the interaction between the merchant and the customers.”

In other words, it’s like walking into Cheers, where everybody knows your name.

[Photo credit: Wikipedia.]

Critics suggest that using a credit card at the register is not much harder than using a phone enabled with near field communication. But if you are having a hard time understanding, maybe it’s because you are getting too old (sorry if I’m the one breaking it to you).

In an interview, David Messenger, American Express’s head of online and mobile, tells me they have identified a major pain point among teens and others who are still using cash and checks to conduct a majority of their transactions.

Dozens of companies are rushing into the space, including eBay-owned PayPal, American Express, Google, Visa, Mastercard and start-ups, too, like Square and others, but it’s not clear how quickly consumers will find reasons to use new payment technologies.

“The key thing that we’ve found resonates is the social aspects,” Messenger said. “This is about new growth opportunities and people who use cash and checks. … It’s the social experiences that don’t have great solutions. It’s awkward.”

Messenger also sat on panel yesterday at Mobile Future Forward in Seattle to discuss the topic with other executives from Google, Walmart, T-Mobile USA and OpenMarket.

The conversation got heated when a woman raised her hand to say she didn’t understand why she would ever adopt mobile payments: Seriously, how could a phone be easier than swiping a card?

Walmart’s SVP of online and mobile, Gibu Thomas, explained that the discount retail conglomerate would never pressure users to adopt it, while T-Mobile Chief Strategy Officer Peter Ewens defended the technology by saying that it improved security.

But Messenger said in an interview to me that the bigger opportunity is in the international markets, and for now it’s focused on teenagers in North America, who struggle in social settings.

He said the benefits are obvious when splitting a check at a restaurant, divvying up rent and utilities among five roommates every month, or being the person who fronts the money to buy tickets to a concert for a group of 10. Those transactions today are largely conducted with cash and checks.

Earlier this year, American Express unveiled a new business called Serve that competes with PayPal and other emerging payment platforms. It lets consumers make purchases at retail, withdraw cash from ATMs and make person-to-person payments from their computer or their phone.

Serve recently inked a deal with Ticketmaster to be integrated into the check-out process. People frequently abandon the purchase at the check-out in fear that their friends won’t repay them the hundreds of dollars owed for a concert or sports event.

Once Serve is integrated, he said, Ticketmaster will hold the tickets for a certain period of time and send an email to friends, alerting them to pay directly for the ticket. At that point, it’s simple: If they don’t pay, they won’t go.

American Express is also experimenting with using social networks by creating a Facebook application called “Pay Me Fool,” which uses humor as a way to make it more comfortable for someone to bug a friend to pay them back for beers last weekend.

For now, Serve mostly works as a prepaid card, but in the future, the platform could be used in conjunction with NFC or other emerging technologies. Messenger said they aren’t ruling anything out and are trying to be as open as possible.

The card can even be topped off with a Visa or Mastercard.

But right now, Messenger and the other participants on yesterday’s panel agreed on one thing: NFC is still about three years away from hitting the mainstream. It will take a while for users to get NFC-enabled phones and for retailers to have NFC-enabled payment terminals.

“NFC gets a disproportionate amount of attention,” said Messenger, who attributed the fixation to our “gadget-driven culture.”

A look into his wallet suggests how far the industry is from any major changes. Messenger’s thick leather wallet contained cash, a Connecticut driver’s license, 10 loyalty cards and five credit cards, including two from American Express, one from Serve and two from Mastercard.

However, I’ve found that asking mobile payment executives what is in their wallet is far from a window into the future.

Messenger said most importantly, the prepaid product addresses a whole new segment of the population that its corporate-heavy image would not normally attract. He hopes new types of commerce models will flip its business upside down.

For example, today, Amex markets heavily to acquire new customers and then keeps existing users happy by offering them rewards. He suggests that Serve will make it much easier to acquire new customers because of partnerships, such as the deal with Ticketmaster or another deal it has with Verizon Wireless. From there, he said, they will have to keep giving Serve users reasons to come back.

[image via if-youcantsleep.tumblr.com]

Everybody wants in: The oddball start-up, substantial media companies like the New York Times, even AT&T and Amazon.

And it won’t stop there. No really, trust me, it won’t.

The next crop of companies that you may start getting offers from could include your bank, or even that hotel chain or airline you use most frequently.

This is through a nifty invention called card-linked offers, which honestly isn’t all that new at all. It works very similarly to how your credit card company offers you discounts on rental cars or hotel rooms. But now it’s becoming an ad network of sorts that can accept offers from all kinds and can take place with any brand.

I’ve written about this before, and to be sure, there’s no lack of venture-backed companies all hoping this is the next Groupon-killer. Some of the participants in the space include BillShrink, FreeMonee, Clovr Media, Offermatic and Cardlytics.

In this case, I talked to Lexington, Mass.-based Cartera Commerce.

The company, which has 165 employees and has raised $30 million, is announcing a partnership today with InterContinental Hotels Group to allow hotel guests to earn rewards points while doing everyday shopping.

If users link a credit card to IHG’s loyalty program and make purchases at participating retailers with that card, they will earn points that can be redeemed at such InterContinental Hotel brands as Holiday Inn, Hotel Indigo and Crowne Plaza.

The Aite Group estimates that by 2015, 460 million consumers will have signed up for incentive programs such as these, totaling about $1.7 billion in annual revenue for card issuers.

Tom Beecher, Cartera’s president and CEO, walks me through a PowerPoint presentation, comparing how it is better than Groupon’s business, and how it compares with Google.

On one side of the equation, he explains, there are the publishers, and on the other side there are advertisers and brands. That’s sort of like Google’s AdWords and AdSense.

In the same way, Cartera works with advertisers and also the banks, airlines, hotel chains, or other similar services that have access to the consumer. Some of its customers include Chase, Wells Fargo, American Airlines, Best Buy and USAA.

Because consumers link a credit card to these offers, these are considered very well-targeted ads. Cartera is able to collect information at the aggregate level to find out about spending habits. Advertisers can selectively make offers to consumers who shop at their competitors, but not current customers who already visit regularly. That helps retailers acquire new customers and not just give discounts to already loyal patrons.

So far, Cartera says it has processed $1 billion in transactions on its platform, and is seeing conversion rates from 20 to 40 percent.

Even though these offers are not as well recognized as Groupon, they are typically easier to redeem.

The offers don’t need to be purchased in advance or printed out. Consumers automatically get the discount when they use the same credit card that received the offer. The offers can appear in a number of formats, from a Web site to an email or a line item within their bank statement.

Photo Credit: Images_of_Money.

Saverin, who also helped inform the plot of Aaron Sorkin’s “The Social Network,” invested in the company’s $6.5 million round back in March. He will also oversee the company’s entrance into the Asian market, although today the company is launching in the U.S. and Europe.

The goal of the Mountain View, Calif.-based company is to make entering a user’s credit card information into an online form a snap, while also making it much more secure, according to Jumio Founder and CEO Daniel Mattes (pictured right).

It works like this: To purchase something online, consumers hold their credit card in front of their webcam. The card is quickly recognized and verified without taking a picture or storing the data on the computer. The information is then entered in the correct format.

The technology will soon also be adapted for mobile phones so merchants can accept payments in person by using the phone’s camera.

Mattes said it solves two pain points — usability and security.

During trials, he said Netswipe was able to decrease the number of consumers who abandoned their purchases at checkout to 21 percent from slightly more than half. It can also cut down on fraud, because consumers must have the actual card in hand.

“It’s almost impossible to make and use fake cards. We can detect if the type is embossed or if there is a hologram,” Mattes said. “We spent a lot of time and money and effort on accuracy.”

With so many advances taking place in the payments space right now, the technology is already similar to a couple of solutions on the market.

First, there’s Square, the well-backed San Francisco start-up, which has created a card reader that plugs into either a cellphone or a tablet, so that payments can be accepted cheaply and easily in person. Second is Card.io, which captures payment data by holding a credit card up to a phone’s camera to automatically read the card information and enter the appropriate data.

Mattes said Jumio is “like Square for online,” although Jumio will also soon be coming out with a mobile version for making in-person payments.

Jumio will have three products initially, which will let merchants decide how comprehensive a payment network they want. If merchants only want to use the scanning technology via the webcam, it costs 15 cents a scan; for more comprehensive services, smaller merchants will pay a flat rate of 2.75 percent per transaction with no set-up or monthly fees.

So far, Mattes said Jumio has five merchants signed up, but he wasn’t willing to name them at this time.

The credit card companies said today they are committed to the Isis joint venture formed by AT&T, T-Mobile USA and Verizon Wireless.

The deals are a big coup for the carriers, which face many hurdles in stitching a payments network together that spans banks, merchants, hardware manufacturers and consumers.

The participation of the major credit card companies will go a long way toward creating a usable service, and is notable, given that all of the companies are pursuing some sort of digital payments strategy of their own.

It’s important to note that Sprint is the only major U.S. carrier not participating in Isis.

There has been some question as to whether it was originally part of the carrier’s plan to have such an inclusive approach, or if it later realized that the project would be impossible if it did not attempt an open approach. Isis executives have downplayed any drastic shift in strategy.

Since Isis was formed, Google has launched its mobile wallet strategy and others have announced digital wallets as well, such as Visa and American Express. MasterCard has partnered with Google. Other start-ups, like Square, are also competing in the market.

Isis announced it was going to launch initially in Salt Lake City and Austin, Texas, using near field communication. It plans to roll out in the first half of 2012 with support from all four payment networks.

That’s the question I asked some digital money experts, whose job it is to push the creative boundaries on payments.

So, having captive reps from some of the key companies — BOKU, BilltoMobile, Intuit and Tapjoy — involved in leading the charge to do away with cash and plastic, I wanted to know what they carried around daily.

And — given I was moderating a panel for the MobileBeat 2011 conference, titled “The Likely Winners In Mobile Payments: Carriers, PayPal?” — it seemed like an appropriate query.

You’d think they would be on the cutting edge, right?

Wrong!

In fact, two of the panelists were still carrying around checks; one had dozens of credit and debit card options from banks around the world; and two were even carrying business cards from their previous employers, because they believed they could get discounts at rental car agencies.

Only one had a digital wallet.

That was Steve Klebe, VP Business Development & Strategy, BilltoMobile, who actually had an NFC-enabled sticker on the back of his phone, which was connected to his Discover account. But he’d only used it once.

It was also Klebe who carried around a blank check, in case of an emergency. Ron Hirson, BOKU’s SVP Product & Marketing, also had the kind of money that folded — a $50 American Express travelers check.

Remember those?

Omar Green, Intuit’s director of strategic mobile initiatives, had the biggest wallet — bursting — with a giant pile of cards stuffed in it. Deng-Kai Chen, director of product management at Tapjoy, easily won for carrying the lightest wallet — he claimed it was bad for your back if you sat on anything bigger in your pocket.

Everyone also had a variety of loyalty cards, photos, receipts and transportation passes.

What about me?

As the solitary female representative at the table I was the only one with coins, including about $2 in pennies (because I’m too lazy to ever spend them). I also probably had the most cash — around $28, mostly in $1 bills.

So how close are we to a mobile wallet revolution?

Judging by what was in our wallets, you might want to wait a while.

Photo Credit: allie.

The addition of PayPal to Xbox brings into question whether Sony will be next after its very public debacle, which included shutting down its PlayStation Network after hackers obtained personal information associated with accounts, including names, addresses, email addresses, birthdates, usernames and passwords.

Additionally, it cautioned consumers that their credit card information may have been obtained.

Integrating PayPal may not eliminate all of those concerns, but it could potentially add another barrier between a customer’s sensitive information and the outside world.

In the announcement, neither Microsoft or PayPal hinted that the integration had anything to do with security or Sony’s woes. A PlayStation spokesperson did not respond to an email, asking whether it was considering alternative payment methods in the future.

However, beyond Xbox or PlayStation, it is becoming increasingly common for a variety of payment methods to be offered by merchants. In particular, game companies have been aggressive. For instance, on Facebook players can commonly charge virtual goods to their mobile phone bill or PayPal, among other options.

Other new payment mechanisms are also in the works. Visa revealed part of its digital wallet strategy last week, saying that it would allow consumers make payments with their credit card through an associated username and password instead of typing in their entire credit card number.

Not only could it be more secure, consumers often find it more convenient. In fact, convenience seems to be one of the main factors of the relationship between Xbox and PayPal.

Microsoft said Xbox 360 owners in more than 20 countries around the world will now be able to use their PayPal accounts to buy Microsoft Points, Xbox LIVE Gold subscriptions and Games on Demand.

The integration began rolling out early yesterday morning and will be available worldwide in the next few weeks.

eBay-owned PayPal said in a blog post nearly 75 percent of people who identify themselves as gamers also have PayPal accounts, according to an Ispos study from March of this year.

In response, Square’s CEO Jack Dorsey said the claims weren’t “fair or accurate,” and that VeriFone was overlooking all of the protections already built into your credit card.

VeriFone’s awareness campaign may be considered a little unconventional.

The company went as far as to launch a web site, record a video, and develop a mock-iPhone app that demonstrates how easy it was to use Square’s dongle to skim information off of a credit card.

Reactions to VeriFone’s approach largely sided with Square.

In comments on our site and on other venues, including Twitter, respondents mostly waived off the concerns, saying that VeriFone was feeling threatened by Square’s progress in the market.

In an exclusive interview, VeriFone’s CEO Doug Bergeron explained why the company felt it was necessary to launch the campaign.

Actually, the interview was positioned as a way to “clear the air,” although as you’ll see, those were not his words, but rather the phrase his public relations people chose to use in pitching us.

Here is our conversation, which has been edited for length and some context, but is largely as it happened.

Duryee: I was told you want to “clear the air” about VeriFone’s actions last week.

No, I don’t think that’s the way I would put it.

I believe that’s a direct quote from your PR person.

Well, I can’t help what they say.

But this is a very interesting time in mobile commerce. There’s a lot of things happening, and a lot of innovation that is happening, and yet, and yet a lot of historical issues that haven’t gone away.

[Skipping ahead in the interview] How is your smartphone product different than Square’s?

We’ve been selling PAYware Mobile for about a year, and it is selling well. Square is the only one that I know of that doesn’t encrypt their data.

We don’t use a dongle. We use a sleeve, or basically it’s a small cradle that the phone sits in. What’s different is that we encrypt the data, which means it costs $25 to $35 more to provide that technology. We aren’t creating fraud. We want consumers to be able to accept credit cards. But if you cut corners it causes problems.

We’ve been mentioning it for awhile, but we thought we needed to be heard.

Did you approach Square directly?

We’ve been in several conversations–not just with Square–but with the industry, and not just about Square, but about hypothetical devices.

We don’t want an industry that’s been moving toward simplicity, which we think is good, to move toward technology that’s allowing fraud. We don’t want it to go in wrong direction.

Did you give Square a heads-up that you were going to do what you did?

I don’t know who our PR folks talked to or didn’t.

Your PR folks told me that you had a meeting with Square’s CEO Jack Dorsey the week before.

I did see him in New York. We were at a similar meeting. I brought up the security issue, and asked him how are you addressing security? The answer was still, the networks will take care of it.

That’s not the way the rest of the world is treating this.

Networks have programs that monitor transactions, and they’ll call you if you are traveling, and there’s systems that can identify things post-facto, but that’s after the fact. The rest of the world has used smart cards and other mechanisms to stop fraud where it happens.

So, the networks can take care of it?

It’s not good enough. We should be joined arm-and-arm to make sure customers trust these systems and make sure that fraud goes down. I don’t think retailers like paying the highest interchange rates in the world, that’s not fair.

Was your open letter fair to Square?

[He laughs.] Listen it’s a competitive world. We take our role as a leader in the industry seriously. We gave them a heads up and free advice that you shouldn’t be allowing systems out there, unencrypted. If that’s fair or not, it’s not the issue here. We collectively need to create new technology to reduce fraud, whether you are a venture-backed business or a big businesses. We are both responsible for our own decisions and should be able to fend for ourselves.

Were you worried they were gaining traction in the market?

No, not at all. We don’t know what traction they’ve seen. We might be doing more than them. I have no idea. It is worth noting that we do less than a couple of million dollars a year with micro-merchants, such as garage sales or Girl Scout cookies. But that’s not the essence of VeriFone. This is not our massive attempt to protect two million in revenue. If that’s what you think, you are missing the point.

We are not worried about competition in one of our $2 million segments, but we are worried about the industry not being concerned about the third rail of skimming, which is smartphones not using encrypted data.

Still, a lot of the feedback in the comments on our site and on Twitter was that you felt threatened by Square.

I notice Verizon and AT&T advertise whose systems don’t work. Oracle advertises against HP, by saying their systems have more processing power. I’m not quite sure how this is different. We have a solution that encrypts data and reduces fraud. If that’s not worthy of identifying and knowing, what’s wrong with that?

Well, maybe you went too far by making the faux iPhone application available for download on the site?

If we didn’t, we would have been accused of blowing smoke. The fact that we could do it [build one] in an hour demonstrates how serious of a problem it is.

[NOTE: PR jumps into the conversation, adding that the application on its site was only for demonstration purposes. No one could actually download it and skim credit card information with it. It was only to show it was possible, but there was no actual risk.]

You really believe that the Square dongle will be used for harm?

They certainly could. It’s a skimmer that doesn’t look like a skimmer. You might be using a merchant that you trust, and they are skimming right in front of you and don’t even have to go in the back room.

Now that you’ve voiced your concerns, what happens?

I don’t know. We all continue to go along our paths and try to improve paying at the pumps, and paying at the table, and try to continue to promote that smartphones are great and that the data should be encrypted…

We have a competitive reason to do so, and we believe we have a differentiated product. This can be solved. This isn’t rocket science. They can add encryption and they’d be done.

There is no next step. We’ll continue to sell the most robust in the industry, and reduce fraud and feel good about it, and they’ll continue to do what they do.

[From earlier in the interview. Bergeron provided the company's historical context in the industry, which led them to the decision to write the open letter last week.]

Without the benefit of 30 years of watching historical issues, it’s easy to see how our campaign last week was considered unconventional. But the reality is we are speaking to a very seirous issue here.

The first has to do with the ongoing concern–even worry–that retailers large and small are having with conventional card brands.

It plays out like this: I see you give me a lot of value to accept debit and credit because customers like it, but this notion that I’m paying the highest interchange rates in the world in America–15 to 25 percentage points of my revenue. Whereas, the rest of the world on average pays 10 percent. As a retailer, I’d say I’m just not getting how the 25 percent that I’m giving up to the card ecosystem is valuable.

The response is: The reason you pay the highest interchange rates in the world is because there’s a lot of fraud in the system.

Some of it goes to profits and managing the network, but a big piece of it is a pooled risk to cover the fraud in the system. The reason European retailers pay significantly less is because there’s a lot less fraud in the system. Ditto Canada and Australia.

Every other country has taken technology to eliminate or reduce the incidence of fraud and skimming. Therefore there’s less fraud and interchange rates come down.

Every day of the week, I hear them [retailers] complaining about interchange. I defend it. We are what we are, and there’s fraud in the system–that is what it is. We have made it our mission to go after the sources of fraud.

There’s two big areas of fraud, and the unregulated smartphone dongle is creating the third.

What are the two big sources?

The two biggest sources, which Forrester, IDC and NPD would all agree, is gas pumps and restaurants.

And there’s a reason for that.

Gas pumps received a waiver from Visa and other card companies.

They were leaned on by the oil companies, which claimed that meeting PCI compliance at each gas pump would have been really painful for the gas stations. And therefore at the 800,000 pumps today, unlike most stores you go to which use compliant technology sold by VeriFone or others, there’s nothing protecting your data there.

These pumps are serviced in the middle of the night by independent operators. It turns out that there’s a few master keys running around, which open up hundreds of thousands gas pumps, and then skimmers are inserted in the pumps and the data is captured.

Fraud gets created, and interchange has to stay high.

I thought gas stations experienced high fraud because the credit card has already been stolen, and can easily be used at the pump?

No, the signature doesn’t act as a deterrent. There’s a lot of unattended systems, where there’s not a person there, and they are all compliant and are encrypted. Only in America do these pumps exist.

And, what about restaurants?

The second area where there is a lot of fraud happening is in restaurants. You give your card up to the waiter, and they copy it. We agree [with Square] that copying cards down is a form of skimming.

Restaurants are the last frontier. Restaurants are the only place, where you give your card to a stranger and they go in the back room. So much happens in restaurants. They can get the number on the back, or run it through a skimmer, which are commonly available.

We have tech solutions to solve the two big problems, which would go a long way to reducing fraud, and probably reducing interchange.

Which leads us to how you believe Square is creating a new unencrypted point of sale?

We fear it is the third place, where data is being transmitted through a non-payment device without encrypting it before it goes in.

We have an iPhone product called PAYware Mobile.

We are on a mission here to reduce interchange for retailers by increasing the use of technology at the point of sale. We’ve been telling the story to card associations, customers and major retailers for the past year…It’s not just about reducing interchange for retailers when customers get their identity stolen, it’s a major pain in the you-know-what.

We think we are on the cusp of mobile payments, and there’s going to be more and more done with the phone. We want to make sure it is done securely because if there’s a major pandemic of fraud using cellphones, it’s going to slow the adoption.

We not only support mobile payments fully, we were great proponents of the use of smartphone as credit cards and acceptance systems–our point is let’s be consistent with the rest of the industry.

VeriFone makes what are called point-of-sale terminals that stores across the country use to process credit card payments. As part of the potential tie-up with Google, VeriFone’s terminals would be able to accept payments from mobile devices that are embedded with technology called near-field-communication, or NFC, this person said.

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The idea piggy-backs on other loyalty programs already in the market, such as those of credit card companies that offer discounts when customers visit certain hotels or rental car companies.

But with Clovr’s platform, advertisers and brands can enable consumers to associate coupons directly with a credit card.

For instance, a banner ad could offer a 10 percent discount to an electronics store. Instead of printing out a coupon, the user can opt to link the deal to a credit card. The discount is activated only if the consumer uses that credit card at the register.

Since coming out of stealth mode late last year, Clovr has been fine-tuning its approach to the market.

Initially, it envisioned working directly with banks to make the service available to customers. But since advertisers want a large audience to target, the company’s co-founder and CEO Tom Burgess said today, the company realized it had to make the platform more widely available.

To that end, it partnered with credit card processing companies to enable 99 percent of debit or credit card holders in the country to participate in the offers. Burgess said that Clovr is now entering beta and that its first offers will start appearing in May when it is commercially available.

Clovr is part of a new market that is leveraging old technology called Card Linked Offers, or CLOs for short.

Coincidentally, one of Clovr’s biggest competitors is also being backed by someone Burgess knows all too well.

Yesterday, Clovr’s close competitor, Offermatic, announced it had raised $4.5 million in a first round of funding. Investors include Kleiner Perkins Caufield & Byers, Ron Conway and Omar Hamoui.

Hamoui was the founder of AdMob, the mobile advertising company purchased by Google for $750 million in 2009. And Burgess was the founder of Third Screen Media, a mobile ad network that was acquired by AOL in 2007.

Today, Offermatic is Burgess’ West Coast competitor, much like AdMob was his West Coast competitor when both he and Hamoui were executives in the mobile advertising space.

A third company competing in the space is Atlanta-based Cardlytics.

Burgess said there’s one main difference between Clovr and Offermatic. Clovr is a platform that any ad network can use. It does not have a sales team and is not offering deals directly to consumers.

Offermatic launched its beta in December, and sends discounts to consumers based on their spending history. Similarly, it links a consumer’s credit and debit cards to its system so that people receive the discount automatically.

To be sure, all three companies are trying to solve the problem of low redemption rates of physical coupons or vouchers.

Clovr’s second round of funding was led by Bain Capital Ventures. Clovr Media seed investors Kepha Partners and Common Angels also participated. In total, the company has raised nearly $10 million.

“Today one of our competitors alleged that the Square card reader is insecure. This is not a fair or accurate claim and it overlooks all of the protections already built into your credit card,” he writes in a letter on their web site.

VeriFone’s CEO Doug Bergeron wrote a letter of his own this morning, saying that Square has a serious security flaw that places consumers in dire risk.

Dorsey had two response to the claims:

First, he said that credit cards are inherently not secure. “The waiter you hand your credit card to at a restaurant, for example, could easily steal your card details if he wanted to–no technology required,” he argued.

Second, and likely more importantly, he said its partner, “JPMorgan Chase, continually reviews, verifies, and stands behind every aspect of our service, including our Square card reader.”

In addition, he said one method that ensures a transaction is secure is that you can request the merchant send you an instant text message or email receipt that’s delivered from Square’s server after every transaction.

VeriFone went to the fairly extraordinary step this morning of demonstrating on a video how easy it is to turn Square’s dongle, which plugs into the headset jack of a smartphone, can be used to steal credit card information. To do so, it developed an app that could steal financial and personal information using Square’s card reader, and made it available on its web site.

VeriFone said the heart of the matter is that there’s no security built inside the dongle to verify that its connecting with the real Square application–and not some knock-off. VeriFone requested that Square recall the dongles from the market.

Within a few minutes, I’d paid Square’s COO Keith Rabois $2 after he swiped my credit card through a small plastic dongle attached to his iPhone. I signed the screen with the tip of my finger and received a receipt by email to confirm the purchase.

(They did not repeat this transaction more than 10 million times to recently raise $27.5 million, they promised).

For small-business owners, like an artist at a farmer’s market or even a family at a Saturday morning yard sale, this could make the difference in closing a sale, especially as our society moves away from cash and more to plastic.

Rabois says 50,000 to 60,000 new users are signing up a month, and Square is processing millions of dollars a week.

It is also convenience–at a price.

Square charges 2.75 percent plus 15 cents for swiped transactions, and slightly more if you type in a credit card number. For $100, that translates to a $2.90 service charge.

The model doesn’t replace the need for Visa and MasterCard, but does compete head-on with services being built by those financial incumbents, as well as others like Intuit, PayPal and the wireless carriers.

On the merchant side, it’s easy, too. Download the app to either an iPhone, iPad or Android device, create an account and receive a Square accessory in the mail. On the user side, your card will be swiped by a small proprietary reader, and you will be emailed a receipt.

Dorsey, who slowed down long enough to talk to us for a few minutes, is the visionary behind the operation, which sees way more applications for what it is building–from redefining the receipt to getting rid of the register.

EMoney: Last month, Square raised $27.5 million in fresh capital. What’s the plan for 2011?

Dorsey: The plan includes growing the team, both in engineering and design, and increasing the awareness of Square, which means expanding the user base to the plumber, the piano teacher and the dog walker. As for product innovation, we will do a lot with the receipt. “Let’s make it interactive instead of something we throw away.”

How can the receipt experience improve?

Dorsey: Making payments “has never been treated as a product. It’s a burden, and yet it’s such a common human activity.” At the heart of it, the receipt process is a publishing platform, he said. “We can dramatically improve what you take away.” Currently, a Square receipt includes a picture of the merchant, a description of what you purchased, the amount and a map of where you bought it. When buying a cup of coffee, why not include information about the coffee beans, and link to an article in Wikipedia? A more advanced version would eliminate the need to carry around 20 coffee cards and be intelligent enough to give you a 10th cup free.

Do you think you can replace the register?

Dorsey: “Yes. They are terrible.”

How?

Dorsey: “It’s a pain, and it takes forever.” Long lines are created in cafés, and waiters must come back with the check. “We aren’t just accepting credit cards–we are simplifying the friction from the payment system. No one has done this.” Square is looking at making an all-in-one payment and point-of-sale device that could be as simple as an iPad. And, with one swipe of the card, a patron could broadcast his or her location on Twitter and receive loyalty points.

What about innovation on the merchant side?

Dorsey: “There’s a lot of attention on the payers, but not the merchants….Every Silicon Valley company has a dashboard–it’s called Google Analytics–but a lot of small- to medium-size businesses have no access to data at all.” A point-of-sale system could cost $15,000, and still it would not track how many lattes were sold vs. blueberry muffins. But what if a system could be built that could track this and show whether to draw correlations between the two? “Data simplifies everything,” he said.

By the end of March, San Francisco will have replaced more than 5,000 old parking meters with state-of-the-art versions that take credit cards, and, if all goes according to plan, work with sensors to indicate when a car is there.

Other Bay Area cities such as Sausalito and Redwood City have already shifted away from coin-only machines to so-called smart parking meters that help make parking more convenient for drivers and easier to manage for the cities. San Francisco’s $25 million project intends to go a step beyond the other early adopters, using the new meters to reduce car congestion on city streets.

While other cities are using smart meters to simply charge different rates at different hours, San Francisco plans to use the meters to influence how many people park in a particular area at a particular time. The long-term goal is to continuously adjust rates up or down to keep 15 percent of spaces in a neighborhood free, says Nathaniel Ford, executive director of the San Francisco Municipal Transportation Agency. The city hopes the project can reduce emissions on the streets by stopping people from “circling around trying to sharp-shoot a parking spot,” says Mr. Ford.

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Tablet editions of Time and Popular Science magazines–each priced at $4.99–were among the most popular paid downloads for the iPad over the weekend. The thousands of iPad applications available so far also include editions from GQ, Outside magazine, USA Today, the New York Times (NYT) and The Wall Street Journal.

The majority of magazines and newspapers for the iPad are downloaded through iTunes, the channel to purchase music, movies, books and other entertainment for the iPhone and iPad. The more than 125 million iTunes account holders can order iPad periodicals with just a few taps on a screen, instead of pulling out their credit cards and signing into multiple Web accounts.

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The program, which Amazon announced Wednesday, is supposed to replace ordinary login and password combinations with a phrase and PIN combination that are linked to a specific account and shipping address. The distinction is subtle: You have one Amazon login and password (which aren’t going away), but you can have multiple PayPhrases that are linked to specific aspects of your account, like different shipping addresses or credit cards.

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Comments are filing in to the Federal Communications Commission’s request for input on simplifying wireless bills.

The deadline comes amid a thicket of consumer-focused fee news, from credit cards to overdraft fees. Consumer advocates are arguing for more transparency in billing, both when shopping around for plans and for existing mobile subscribers.

Filing comment Tuesday is BillShrink.com, a site that analyzes the fine print of credit card bills and user profiles to find the cheapest cellphone plan. The average consumer overspends $300 a month on her cellphone plan a year, Schwark Satyavolu, BillShrink’s co-founder and president, said. In the last five months, the site has found $800 million in potential savings on cellphone plans.

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Federal prosecutors alleged the three masterminded a global scheme to steal data from more than 130 million credit and debit cards by hacking into the computer systems of five major companies, including Hannaford Bros. supermarkets, 7-Eleven and Heartland Payment Systems Inc., a credit-card processing company.

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