Additionally, it said it is partnering with four software providers to gain access to 50,000 small- to medium-sized merchants.

Meanwhile, tomorrow will be exactly a year since Google launched its mobile wallet.

So, you ask, which large technology company is winning the race to gain the hearts and wallets of consumers and retailers?

Pretty clearly, it’s neither.

Google may have gotten off the blocks first, but ever since, it has been plagued by execution issues and management departures. In contrast, PayPal has a lot of institutional advantages, but it still has a long way to go before it is synonymous with Visa or MasterCard.

Here’s just a snapshot of the two companies’ advantages and disadvantages:

Google:

Pros: It has relationships with 25 national retailers, totaling 140,000 locations.

Cons: It bet too early on using near field communication technology. Sprint, the third-largest U.S. wireless carrier, is the only provider so far that is backing it and it’s deployed on only six Android devices.

PayPal:

Pros: There are 110 million people using PayPal worldwide, who are on track to spend a record $7 billion in mobile payments this year using PayPal on the phone.

Cons: The company is expecting to deploy with 20 retailers by year’s end, but based on the 16 retailers announced yesterday, I calculated that it has access to about 16,000 U.S. locations (far fewer than Google Wallet). That does not include the thousands of locations that those 50,000 small- to medium-sized retailers would contribute if they signed up for it.

Clearly, it is still early days.

And when you look at the broader market opportunity, the race is not just between Google and PayPal. All of the incumbents, including American Express, MasterCard and Visa, have announced digital wallet strategies. And then there are the start-ups, such as Square, which is seeking a $4 billion valuation in its next funding round.

There are two points to be made on the debate between PayPal vs. Google Wallet that can’t be stressed enough: PayPal has the user base, and it has the technology with the lowest barriers to entry.

In theory, if a consumer has signed up for the service from their PayPal account, they will be able to conduct a transaction using their mobile phone number and PIN – without changing carriers or phones. Likewise, merchants won’t have to upgrade their point-of-sale hardware.

In an interview, PayPal President David Marcus acknowledged there’s a chicken and egg problem: Without a lot of locations, there won’t be a lot of consumers using it. But this year is about learning and testing, he said, and next year, “it will be about iterating and full-on execution.”

If you asked the folks at Google, I’m sure they would agree. A Google spokesperson declined to comment for this story, but already, there are signs that Google has learned a lot and has started to pivot.

Rick Oglesby, a senior analyst with Aite Group, believes that Google is distancing itself from NFC and from being the merchant of record.

“I think they will follow the path of least resistance, because for them, it’s not about payments — it’s about advertising,” he said. “It’s about pay-for-performance marketing. Just like how they get paid for a click-through on the Web, they want to get paid when you walk through the door — but no one is monitoring that.”

Last month, Google purchased TxVia, a little-known payments technology company, another sign that it’s changing directions.

Tony Felice, a senior digital strategist for Vladimir Jones, who worked with TxVia at his former job at Red Door Interactive, said TxVia and Google Wallet together can be very powerful. He said TxVia has all the banking relationships, which will help enable payments, gift cards and other services, and also has the ability to produce analytics about what consumers are doing and spending money on.

“Together, they will be able to get a 360-degree picture from the moment of truth to purchase,” he said. “In order to do that, you have to pull in disparate sources and synthesize it in a single place. The transactional data from TxVia is just one piece of a puzzle.”

Oglesby said despite Google’s hiccups, it’s not yet out of the race.

“It’s been a slow-growing situation, and there’s been big turnover on the executive team, but they are reassessing the situation and have made an acquisition,” he said. “I wouldn’t say they’ve screwed up because no one has run way ahead of them. They were leading the market, and tried an approach, and now there’s other approaches for them to try.”

So far, it has deployed at 2,000 Home Depots and has plans to be at 20 major retailers by the end of the year.

Stay tuned as we cover the announcements live.

10:10 am: “Midmarket businesses represent a third of the U.S. economy, and we looked at our capability and decided to partner rather than build,” explains PayPal president David Marcus.

So rather than ripping out their existing systems, the new stuff integrates with existing point-of-sale systems.

The POS software partners are: Vend, Erply, shopKeepPOS and Leapset.

That plugs PayPal into 50,000 merchants across the country, Marcus said. And that’s added to VeriFone and Equinox POS terminal manufacturers, announced this morning, in addition to an existing relationship with Ingenico.

Cue video of the owner of a PayPal-enabled shop full of cute dresses, who says she likes seeing her customers’ faces on the register, emailing them receipts and knowing their purchase history.

Next topic: large retailers. Don Kingsborough, VP of retail and prepaid, takes the stage.

Physical retail and offline retail is no longer about “location, location, location,” but instead about access to customers, Kingsborough posits.

Kingsborough pokes fun at Google’s mobile wallet pronouncement last year in New York (not by name, but it’s obvious), and other competitors’ tests, saying PayPal is much closer to ubiquity.

PayPal’s big partner so far has been Home Depot, so it trots out the company’s Dwaine Kimmet, treasurer and VP of financial services.

10:28 am: Kimmet says PayPal has been a good partner for 1) improving and speeding up checkout 2) combating bank card acceptance costs and 3) providing value to everyone.

That last one sounds really vague, but he’s elaborating. Kimmet gives the example of how text messaging around transactions gives both added security as well as convenience for customers.

Kingsborough is back to give a list of the first 15 retailers, and says some of them will be launching in the next few weeks. This is the meat of the announcement we were expecting. Office Depot, American Eagle Outfitters, Barnes & Noble, Jamba Juice, Foot Locker, J.C. Penney, Guitar Center, Jos. A. Bank, Aeropostale, Nine West, Advance Auto Parts and TigerDirect are the ones I could get before the slide changed.

Now for a string of video testimonials from people like J.C. Penney CTO Kristen Blum. But CEO of Jamba Juice James White is here in person.

White talks about the convergence of online and offline, customer satisfaction, incremental traffic and brand strengthening, while my mind wanders to flavors of smoothies.

Marcus is back to recap. His big theme is scale, and he says that word a bunch of times to describe PayPal’s different categories: online, mobile, different sizes of businesses.

The offline launch will enable PayPal to tap into a market that’s 17 times as large as what it has today, Marcus says.

That was short and sweet. PayPal had given a target of 20 major retailers by year’s end, so announcing 15 in May in addition to Home Depot is pretty far along.

10:55 am: Okay, got the full list of retailers. Here they are: Abercrombie & Fitch, Advance Auto Parts, Aéropostale, American Eagle Outfitters, Barnes & Noble, Foot Locker, Guitar Center, Jamba Juice, J.C. Penney, Jos. A. Bank Clothiers, Nine West, Office Depot, Rooms To Go, Tiger Direct and Toys “R” Us.

That list includes some overlap with Google Wallet, including American Eagle Outfitters, Foot Locker and Jamba Juice. It seems clear that retailers are willing to try multiple strategies to see what works best.

The global payments provider is making the announcement tonight at a special event tied to CTIA, the wireless industry’s annual conference in New Orleans.

MasterCard is the latest — but probably not the last — to unveil its plans for the future of credit card transactions.

To date, a host of other competitors, spanning Visa, American Express, PayPal, Google and the U.S. wireless carriers, have also made announcements.

While all of the payment companies are approaching the digital wallet space with a slightly different product, from the consumer’s perspective they all end up looking somewhat the same — like PayPal.

In the case of MasterCard, PayPass Wallet will allow consumers to buy things online without having to memorize a 16-digit card number or in person by tapping a payment terminal with their phone. The solution is similar to Visa’s V.me digital wallet and American Express’s Serve-branded wallet.

For example, when checking out online with retailers that support PayPass, consumers can choose to enter a username and password to access their wallet. The PayPass Wallet will support multiple accounts, including competing payment providers.

“We spent a lot of time on the underlying technology,” said Ed McLaughlin, MasterCard’s chief emerging payments officer, in an interview. “It is designed for our partners to make sure consumers have a great experience online or in-store on your app. The ability to use any device you have and any account you’d want to invoke is a different approach to the closed-loop accounts.”

MasterCard will allow consumers to sign up for the wallet on its site, but it is primarily relying on banks to get users interested. This summer, it will be going live with the help of a dozen or so banks worldwide, including Citibank. Other major merchants are committing to adding PayPass to their online checkout systems, including American Airlines, Barnes & Noble and Newegg.

Mark Hung, a research director at Gartner, said it’s natural for MasterCard, American Express and Visa to move from the physical world of payments to online because consumers are already entering their credit card number online to check out. “They would like to see the same user experience, whether they are transacting online or offline,” he said.

With banks and retailers on board, Rick Oglesby, a senior analyst with Aite Group, said the focus for MasterCard will have to be on getting consumers interested in signing up.

“There’s definitely going to be some risk of consumer confusion,” Oglesby said, given the dozen of digital wallet options. “They are going to have to invest quite a lot in branding. … Even though the traditional payment companies are entering the space, the brands are relatively unknown. There will be confusion for consumers and merchants alike, and therefore, will require a signficant investment in terms of investing in new brands.”

RELATED POSTS:

• With No Apple or Amazon at CTIA, iPad Rivals Free to Sling Arrows
• Sprint, Verizon, AT&T and T-Mobile CEOs Square Off in New Orleans
• Remember Carrier IQ? Well, It’s Still Around and Kicking.
• Sprint Product Exec: Launching LTE Devices Before Network Just Makes Sense
• FCC Chairman: Rejection of AT&T’s T-Mobile Deal Isn’t Causing Higher Prices
• Boingo Adds VPN and Crowdsource Hotspot Data to Its Wi-Fi Software
• T-Mobile CTO: Network Should be Ready for iPhone Users by Q4
• Interview: AT&T’s Glenn Lurie on Being the New Sheriff in Town
• Another Day, Another PayPal-esque Digital Wallet: Here’s MasterCard’s High-Tech Billfold
• CTIA Gets Down to Business in the Big Easy
• AT&T Aims to Break Into the Home-Security Business
• Interview: CTIA Boss Steve Largent Aims To Keep Conference From Being Lost in the Shuffle

In town for the annual CTIA trade show, the mood shifted back to business on Monday, at least until the evening parties kick off. The U.S. cellular trade association moved the convention from March to May (and to a party town) in hopes that the event can avoid being lost in the shadows of Mobile World Congress and the Consumer Electronics Show.

Although the main part of the show doesn’t begin until Tuesday, the first bits of product news were announced this morning. Verizon debuted the HTC Droid Incredible 4G LTE, while AT&T announced a $49 Samsung LTE Windows Phone as well as its plans to enter the home security business. This afternoon, MasterCard announced its new PayPass digital wallet.

AT&T is planning a press event later on Monday, with further news expected.

RELATED POSTS:

• With No Apple or Amazon at CTIA, iPad Rivals Free to Sling Arrows
• Sprint, Verizon, AT&T and T-Mobile CEOs Square Off in New Orleans
• Remember Carrier IQ? Well, It’s Still Around and Kicking.
• Sprint Product Exec: Launching LTE Devices Before Network Just Makes Sense
• FCC Chairman: Rejection of AT&T’s T-Mobile Deal Isn’t Causing Higher Prices
• Boingo Adds VPN and Crowdsource Hotspot Data to Its Wi-Fi Software
• T-Mobile CTO: Network Should be Ready for iPhone Users by Q4
• Interview: AT&T’s Glenn Lurie on Being the New Sheriff in Town
• Another Day, Another PayPal-esque Digital Wallet: Here’s MasterCard’s High-Tech Billfold
• CTIA Gets Down to Business in the Big Easy
• AT&T Aims to Break Into the Home-Security Business
• Interview: CTIA Boss Steve Largent Aims To Keep Conference From Being Lost in the Shuffle

Today, the San Francisco company says that Sprint is coming on board to join the three other major U.S. carriers: Verizon Wireless, AT&T and T-Mobile.

While the partnership provides additional momentum for Boku, the company still has a way to go before consumers are charging all sorts of purchases to their carrier bills. Today, the majority of Boku-paid purchases are for digital goods, such as in-game currency like Facebook Credits, or virtual goods in social games from companies like Zynga.

In an interview, Boku president Ron Hirson explained that it will still be another year or so before it starts seeing physical goods like clothing or electronics being charged to a carrier bill. For that to happen, carriers will have to drop the rates even lower than what they are charging today in order to be on par with Visa or MasterCard.

Over the past two years, Hirson said, prices already have dropped from roughly 40 percent to somewhere in the “teens.”

“We are proving ourselves out, and showing to the carrier that with each incremental drop, we are growing the pie,” he said.

The next likely product category to adopt carrier billing, he said, is digital content, including music, books, or physical tickets for public transportation or concerts. Those items have a big enough profit margin to make paying slightly higher transaction fees affordable.

Other companies in the carrier billing space include Mopay, BilltoMobile and Zong, which eBay’s PayPal acquired last year. Boku strengthened its position earlier this year when it raised $35 million in fresh capital.

While carrier billing has been slow to take off, Hirson said the company believes it will be a huge opportunity because of the convenience factor. To purchase something, users enter their phone number, and then authenticate that payment via text message.

Boku said today that it also signed up a carrier-billing partnership with Deutsche Telekom in Germany, meaning that it is now processing transactions with every major carrier in France, Germany, the U.K. and the U.S.

The company also announced that it has added two executives to its team: Jon Prideaux, the former EVP at Visa, is joining as chief business officer; and Stuart Neal, the former managing director of international development for Barclaycard, is joining as SVP of Business Development.

The credit card company, located in aptly named Purchase, New York, explained in a blog post today that cash is expensive and inefficient to use, and yet 85 percent of the world’s transactions still rely on it.

To say that cash is expensive or inefficient might be confusing to some. After all, if you use cash to buy something, the merchant doesn’t pay a dime; you can withdraw cash from an ATM for free (if it’s your own bank), and nearly everyone accepts it.

Meanwhile, companies like MasterCard, Visa and even alternative payment providers like Square or PayPal, will take a percentage of the transaction to process it electronically. In that scenario, the merchant pays, and, by proxy, so does the consumer.

But here are some of the inconveniences of cash:

• U.S. pennies and nickels cost twice as much to produce as they are worth.
• Cash leads to $1.5 trillion in underreported business income to the IRS.
• And it’s gross: Bacteria, including E. coli, are on 94 percent of U.S. bills.

If you agree, MasterCard is currently taking a poll on its blog to see what percentage of transactions you would like to conduct in cash.

And here’s a look at the infographic that MasterCard made to illustrate its point:

In a survey of technology experts and stakeholders, conducted by the Pew Research Center’s Internet & American Life Project and Elon University’s Imagining the Internet Center, 65 percent of people said they believe that mobile payment technology will be widespread by 2020.

Meanwhile, it found a dissenting view, with 33 percent of those same stakeholders believing it will take longer because people will resist technology that wants to learn everything about their personal purchasing habits.

Relatively few people believed that cash or credit cards will disappear entirely.

It’s unclear whether the 2020 date is optimistic or seems too far out given that so many companies are investing aggressively today. PayPal and Google are the two most notable technology companies going after the opportunity, but so are the incumbents, including Visa, MasterCard and American Express. Additionally, the U.S. wireless carriers are mapping out their own plans through a joint venture called Isis.

As part of the report, Pew published remarks from a few respondents:

Google’s Chief Economist Hal Varian said: “The 2020 date might be a bit optimistic, but I’m sure that this will happen. What is in your wallet now? Identification, payment, and personal items. All this will easily fit in your mobile device and will inevitably do so.”

Susan Crawford, professor at Harvard’s Kennedy School of Government, put it more practically: “There is nothing more imaginary than a monetary system. … Of course we’ll move to even more abstract representations of value. Other countries are already content to use their phones; we’ll catch up eventually.”

Called Serve, it is competing head-on with eBay’s own PayPal, as American Express attempts to expand its audience beyond briefcase-toting corporate users.

At eBay, Sample was the CTO of X.commerce, the open commerce platform the company unveiled late last year that gives technology tools to retailers at no cost. Prior to eBay, Sample was a senior executive at Yahoo, where he led the open, social and participation platforms. He left Yahoo in August 2010.

Sample’s technical expertise is focused on developing and building platforms and products for emerging technologies.

Serve is a complex platform that allows consumers to make purchases, take cash withdrawals from ATMs and make person-to-person payments from their computer or their phone.

The offering is fairly complex because it can be funded by a user’s bank account or credit or debit card — even from one of the company’s major competitors, like Visa or MasterCard.

In the future, American Express envisions expanding the platform to mobile phones, using near field communication or other technology.

Given eBay and PayPal’s extensive knowledge in the digital payments arena, many of its executives have left the company to explore the endless number of opportunities sprouting up.

Recently, Alyssa Cutright, a 12-year veteran of PayPal, left to join Square, a payments company in San Francisco; and of course, PayPal President Scott Thompson left at the end of last year to join Yahoo as CEO. Last week, eBay named David Marcus as his replacement.

True to his word, the entrepreneur has done a lot in the past eight months.

He sold his start-up to eBay for $240 million; became PayPal’s VP of Mobile; and launched PayPal’s mobile payments service, called Here. Now, he’s been named president of PayPal. The position opened up in January, after Scott Thompson stepped down to become CEO of Yahoo.

Now, with his appointment, Marcus’s list of things to do grows a lot longer.

In an interview, eBay CEO John Donohoe emphasized that what PayPal needs more than ever is an entrepreneur at the helm, one who can take advantage of all the opportunities that lie ahead.

“It’s the right time for PayPal to combine the global scale and reach with a product guy and entrepreneur like David, who is going to take PayPal to the next level,” he said.

PayPal, which is eBay’s fastest-growing division, is pushing into two new hot areas: Mobile payment and point-of-sale.

Mobile payments are taking off as people shop online from their phones and tablets, while offline is a massive opportunity dominated by the Visas and MasterCards of the world.

It’s hard to put a dollar figure on the market opportunity, but PayPal tries putting it in perspective.

In mobile alone, it expects payment volume to hit $7 billion this year, up from $150 million in 2009. For point-of-sale, it will double PayPal’s $70 billion business if it captures 2 percent of all sales. If it captures 4 percent, it will triple it.

Before joining PayPal, Marcus was the founder and CEO of Zong, a mobile payments company that was building a platform that allowed users to charge purchases to their carrier bill. Today, PayPal uses Zong’s platform for mobile payments, and is also leveraging it for its offline payments business. For instance, when using PayPal to pay at the register, users don’t need to have their wallet or phone with them. They can simply enter a phone number and PIN to pay. That technology is live today at more than 2,000 Home Depots.

Donahoe said he was impressed by Marcus when eBay was still in talks to acquire Zong.

“He really felt deeply that if he could get Zong to PayPal’s scale that we could do extraordinary things,” Donohoe said. “From the moment he joined, it’s been fun to watch an innovator who’s been recognizing that he can innovate at scale.”

Over the past seven months, Marcus has been charged with the launch of PayPal Here, which allows small-to-medium-size merchants to accept payments using a small dongle plugged into a smartphone. The service, which launched earlier this month, is nearly identical to a service offered by Square, a start-up founded by Twitter’s Jack Dorsey.

Marcus said he was really impressed with how fast it was to launch such a complicated product that required encryption and compliance on a global scale. In the first 24 hours, the company signed up more than 1,000 businesses an hour for Here.

“The organization came together, and we built it really quickly,” he said. “I’m excited in this new capacity. If we innovate at scale, we can change the world in a meaningful way.”

Boku is a company that has been focused on partnering with wireless carriers for online buying and direct billing through wireless accounts — until now. Earlier today, the San Francisco-based company said it’s taking a more holistic approach to mobile payments, through its new Boku Accounts.

Boku’s new approach is three-pronged, Boku’s co-founder and vice president Ron Hirson said. To start, it’s a white-label mobile payment account for a Boku customer, issued by a mobile network operator (carrier), that allows the subscriber to see how much they’ve spent at certain venues, set up a budget, and most important, pay for things.

Secondly, Boku-friendly businesses can now offer discounts to customers with a Boku-equipped phone. The coupons and deals are meant to be a seamless experience — for example, a Boku Accounts customer may go to pay for something and the merchant’s discount should be automatically applied, without the customer having to fumble for coupons or show evidence of the deal on their phone.

Lastly, Boku Accounts includes a PayPass sticker from MasterCard, which works as both a magnetic stripe and an NFC strip, so users can stick it on the back of their phones and pay for something in-store with the sticker.

Online, Boku account holders can pay for things with their carrier-issued account; on mobile, Boku works on iPhone and Android phones, as well as on simpler feature phones.

In some ways, what Boku is doing to enable offline, in-store purchasing is similar to PayPal’s efforts to establish itself at point-of-sale systems in stores. Late last year, the eBay-owned online payments giant began testing new payment options at Home Depot that allowed PayPal employees to purchase things by entering in their PayPal account numbers at a special terminal or by using a PayPal credit card. In January, the company said it plans to roll out this service to more than 2,000 Home Depot stores across the U.S. by March.

In the case of PayPal, new offline payment options are posing a potential threat to traditional credit card companies, such as Visa and MasterCard, as PayPal has the ability to undercut the fees that merchants pay to accept the traditional networks’ cards. Visa’s global head of product recently criticized PayPal’s new in-store options, pointing out what he believed were data security threats.

But Boku is actually working with MasterCard, since it’s using a MasterCard magstripe. Many customers would probably still find it easier to tap their MasterCard-stickered smartphones against a credit card terminal than to enter a mobile phone number tied to a payments account. And Boku says the advantage of this system is that merchants don’t have to “re-terminalize” — install an entirely new payment terminal — in order to accept Boku payments.

Boku launched in June 2009, has a footprint in 66 counties, and works with more than 240 carriers worldwide to power payments through wireless phones. The company has raised more than $40 million in funding to date from investors at Andreessen Horowitz, Benchmark Capital, Khosla Ventures and others. It has been speculated that the company could be an acquisition target, but Boku declined to say whether it has been in talks with potential buyers. Another one of its competitors, Zong, was acquired by eBay last July for $240 million.

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.

In an interview this afternoon, eBay CEO John Donahoe confirmed that it was indeed a “shock” — as he wrote to staff in a memo — after returning from a long New Year’s weekend, to learn that the head of one of the online commerce giant’s key divisions, PayPal President Scott Thompson, was leaving to be CEO of Yahoo.

With only 15 hours’ notice before the planned announcement this morning by Yahoo — and even earlier, given that AllThingsD.com scooped the news last night — Donahoe had no time to inform the company, especially those working at PayPal.

Still, he was as cordial as he could be, given the circumstances.

“Scott is a great guy, and he did a great job at PayPal, and I am one of his biggest supporters,” said Donahoe — known at the company for his even-handed demeanor — despite being blindsided by the longtime eBay exec and also Yahoo. “I told him, ‘I hope you are very successful at Yahoo.’”

But the eBay leader, who noted that he prefers to avoid corporate drama, shrugged off the suggestion that there would be any animosity going forward with Yahoo.

“It’s not the timing that I would have liked. It would have been nice for him to be able to tell the team, but that’s neither here nor there,” Donahoe said. “It’s no big deal.”

He also said he’s not holding a grudge against Thompson.

“Scott wanted to be a CEO, and that’s great. He felt the opportunity wasn’t going to come along again. He had the best non-CEO job in the world, but he wanted to be a CEO, and wanted to go for it,” said Donahoe. “I get that, and there’s not that many CEO jobs coming up.”

Still, after the news broke, one senior Yahoo leader joked to AllThingsD that he was afraid to call Donahoe.

Indeed, now that Yahoo has nabbed Thompson from its crosstown Internet peer, Donahoe will have to move fast to fill the exec shoes now abruptly left empty.

That’s especially true since Thompson’s departure is occurring at a most inopportune time.

First the good news: The digital payments division, which has been the bright spot at eBay, is on target to have a record 2011 performance, and is set to roll out several significant initiatives this year.

But the big item on PayPal’s agenda is daunting, too: To challenge both incumbent payment providers, along with new entrants, such as Google, by creating a digital wallet that can be used for physical payments at retail.

Nonetheless, the most pressing order of business, obviously, is that Thompson will have to be replaced.

And that’s no small task. The seven-year PayPal veteran has a deep knowledge of the digital payments market, and has a track record of success. PayPal has continued on a breakneck pace over the last couple of years, with the division’s revenue now on track to surpass that of eBay.

In addition, Thompson — often described as likable with an easy-going personality — was the company’s most visible cheerleader on payments, eagerly talking to major retailers and convincing them to get on board with its next generation of services.

Now, while PayPal has a plan and a budget for 2012, there is currently no sole person to implement the vision.

Donahoe, who will head up PayPal in the interim, said he addressed the PayPal executive team in a meeting this morning, in an effort to keep the momentum going.

“I got together with the team this morning and we spent a couple of hours together. Rest assured that they are driving ahead collectively to implement the plan that they helped put together over the last year,” Donahoe said. “They have a clear set of 2012 priorities, and they are excited.”

He added: “There was a shock in the morning, but by noontime, it was full speed ahead.”

As an example, Donahoe said eBay had already reassigned five of the company’s top 15 strategic accounts that Thompson was responsible for. Donahoe will take a couple of those, as will eBay CFO Bob Swan, and Devin Wenig, president of eBay’s Marketplaces unit.

But make no mistake, there needs to be a Thompson replacement, and quickly.

PayPal does have a deep bench of executive talent, and any number of senior executives could step up to take the role, although it’s also likely that eBay will conduct an external search before coming to that conclusion.

“I won’t worry about what’s next until we’ve made it a couple weeks into the year and are hitting our milestones,” said Donahoe, who noted that the company’s vision was shared by the management team, and even though Thompson was the one communicating externally, “It was not a one-person plan whatsoever.”

Donahoe declined to elaborate any further on how eBay would conduct a search.

Thompson’s direct reports and key leaders include:

Ed Eger, SVP and GM of North America, core payments and emerging markets; John McCabe, SVP of worldwide operations and customer service; Patrick Dupuis, CFO; Gary Marino, SVP of credit products and risk, who joined through the acquisition of Bill Me Later; Mark Lavelle, VP of strategy and business development, also from Bill Me Later; Rupert Keeley, SVP of Asia Pacific; Sam Shrauger, VP of global product and experience; James Barrese, VP of product development; David Marcus, VP of mobile, who joined through the acquisition of Zong; and Ranjana Clark, SVP and chief customer and marketing officer.

And there is a fairly long list of companies for eBay to attempt to cherry-pick from.

One obvious company is Amazon, which has a competing payments division. If PayPal could legally pull it off, Matt Swann, VP and general manager of payments of Amazon, would be a prime candidate to run the company.

There are also other companies with payment talent — many of which are also situated near eBay in Silicon Valley — including Apple, Google, Facebook, VeriFone, Intuit and the traditional payments providers, such as Visa, MasterCard or American Express.

While analysts viewed Thompson’s departure as a negative, they were still largely optimistic about PayPal’s future.

Colin Sebastian of Baird Equity wrote in a note to investors that “the core PayPal consumer value proposition remains strong, in our view, and remains well positioned for long-term growth.”

Citi Analyst Mark Mahaney pointed out that Thompson’s departure comes on the heels of a number of PayPal executive departures, including Stephanie Tilenius and Osama Bedier, both of whom left for Google; and Lorrie Norrington, who left eBay for personal reasons.

Still, eBay’s stock dropped $1.18 a share, or nearly 4 percent, on the Thompson news, to close at $30.16.

It is interesting to note that eBay’s market cap hovers close to $40 billion, which is still twice Yahoo’s market valuation.

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.”

The investment marks MasterCard’s first in the mobile payments space, and follows similar moves by both Visa and American Express.

Neither company is releasing terms of the round, but mFoundry said MasterCard was the lead investor. Intel Capital, Fidelity Information Services and Motorola Mobility also participated. Previous investors include PayPal, Bank of America and Ignition Partners.

Consumers will most likely recognize mFoundry for developing the Starbucks mobile application, which displays a bar code that can be scanned at the register to make payments from a prepaid account.

MasterCard’s SVP of Mobile James Anderson said he was more interested in mFoundry’s relationships with 600 banks and credit unions.

For the past five years, the company has been focused on the mobile banking space, by developing applications for banks that enables users to check their balances and conduct other financial services from their phone. He said millions of customers at banks, such as Citi and Bank of America, use the applications three to four times a week on average.

Going forward, MasterCard wants to work with mFoundry to enable those applications to make payments at the register using MasterCard’s near field communication (NFC) technology called PayPass.

Near field technology allows a consumer to tap their phone at the register to pay for items. By integrating with these banking applications, the purchase could be deducted straight from a person’s bank account, and without the need to carry around a wallet.

MasterCard is also working with Google Wallet and ISIS, the wireless carrier-led initiative, but it views this partnership as a third approach. “Some consumers will see value in Google; others will want to use their telco provider, and then some will trust their bank,” Anderson said. “At some level those options will be competing, but we believe the choice is up to the customer.”

MFoundry’s CEO and founder Drew Sievers said the relationship is not exclusive, so his company will be free to work with Visa or others, but MasterCard will naturally have a head start since they will be the first ones integrated into the application. Deployments will occur as soon as the middle of next year.

MasterCard is not the only payments provider making investments in the mobile payments space.

Earlier this year, Visa made a large investment in Square, and American Express has opened up an office in San Francisco and created an intimidatingly large $100 million investment fund to make sure it doesn’t miss out on any opportunities.

Sievers said for companies in the mobile banking and payments space that are gaining traction, there’s not only venture capitalists eager to invest, but a ton of companies looking for strategic investments.

In fact, he said, “there’s fewer opportunities to invest in than there are companies willing to invest.”

The payments company will be using the name V.me to differentiate it from its more well-known services found at thousands of retail locations around the world.

Consumers will be able to fund the digital wallet using a variety of sources — a Visa, MasterCard or bank account.

It will be used to check out online using a user name and password, rather than having to key in the 16-digit number each time. The idea is similar to eBay’s PayPal, and to services by Amazon as well as e-wallet services being developed by American Express.

It will also be useful for checking out while shopping from a browser or application on a mobile phone or tablet. Later next year, Visa plans to roll out mobile payments to the register, where consumers will be able to tap and pay using near field technology.

The digital wallet is in a closed beta today but will be coming out in early 2012, after the holidays.

Jennifer Schulz, Visa’s head of product, strategy and innovation, said the wallet is intended to be open and funded through sources outside of Visa, and therefore “we wanted [the brand] to evoke Visa, and link to it, but without saying Visa.”

To accelerate the adoption of Visa’s payments services, including V.me, Schulz said Visa is unveiling a new developer program that will give anyone, including retailers, merchants and start-ups, access to its payments services.

The tools give mobile developers easier ways to accept payments on the phone, and help game developers that want to sell low-priced digital goods. There are also tools for big-box retailers.

American Express is also trying to woo developers, but rather than focusing on opening up its platform to developers, it has created a $100 million fund to invest in digital commerce opportunities.

Visa’s developer center brings its subsidiaries — including Authorize.Net, CyberSource, Fundamo and PlaySpan — together under one roof.

“We are announcing the Visa Developer Center, which is our platform for engaging developers globally with our Visa payment solutions,” Schulz said. “It provides us with a platform for engaging an important set of constituents.”

The document shows MasterCard’s push to create products based on information about people’s purchases that help marketers understand consumer behaviors, target ads and measure the effectiveness of ad campaigns.

One portion describes how shopping histories could be used to understand people’s lifestyles and motivations. “The combination of actual purchase behavior with attitudinal and demographic information provides an unparalleled understanding of the consumer,” it says.

Read the rest of this post on the original site »

The Web site — which publishes leaked, sensitive documents — said it is temporarily suspending all publishing operations so that it can devote its resources to battling Visa Inc., MasterCard Inc., eBay Inc.’s PayPal, Bank of America Corp. and other companies that have prohibited payments to the site since last December.

Read the rest of this post on the original site »

Enter Google Wallet, the search engine’s answer to this problem. This mobile app uses a chip in the phone so it can be waved in front of payment stations to buy things. Users set it up by registering a credit card to the phone or loading a Google Prepaid Card with a credit card. A four-digit password enables payment transactions. Google Wallet is rolling out this week to Sprint’s already available, $50 (after $50 mail-in rebate and with a two-year contract) Nexus S 4G phones by way of an Android operating-system software update.

A phone with Google Wallet and a payment terminal.

I’ve been trying Google Wallet in Washington, D.C., and Palo Alto, Calif., and I find it delightfully easy to use. Though still in its infancy, it isn’t hard to imagine digital payments catching on and becoming commonplace. But there are plenty of caveats.

Google Wallet works only with phones with an NFC (near field communication) chip, which allows secure digital transactions over a short distance. In Japan, millions of cellphone users have been using mobile wallets with NFC chips, but the technology has been slow to catch on in other countries. For now, the Nexus S 4G is the only phone in the U.S. that works with Google Wallet, though more phones are expected soon.

Paying with Google Wallet is possible only at stores that offer MasterCard PayPass. In Washington, D.C., near my office and home, these included Sunoco, McDonald’s, CVS and Papyrus; other stores include Home Depot, 7-Eleven, Best Buy and OfficeMax. A MasterCard PayPass finder is built into the app and displays nearby locations where PayPass works. These can be viewed on a map, in a list or filtered by category. For now, only 150,000 merchants have the equipment in stores to use PayPass.

Citi MasterCard is currently the only credit card that can be directly added to Google Wallet, but the Google Prepaid Card can be loaded with other credit cards. Google said it will also work with Visa, American Express and Discover cards, but couldn’t say when.

Several other companies are planning their own digital-payment solutions. Last week, PayPal said it would launch pilot programs at the end of this year for a cloud wallet, usable by entering a phone number and a PIN at the register. Square has launched Square Card Case, a free app available on Android and iPhone that works on the idea of paying with virtual tabs, like starting a tab at a bar. Both ideas from PayPal and Square would avoid the need for phones with NFC chips.

Next month, Google Wallet will let people register their store loyalty cards and gift cards in the app so a Wallet purchase at CVS, for example, would recognize my CVS ExtraCare card. Registering a gift card from, say Macy’s, saves the trouble of carrying the card at all times. (Currently, only American Eagle Outfitters allows loyalty cards and gift cards with Google Wallet in some of its New York stores.)

People also will be able to search for more store coupons on Google’s search engine and click to add them to their Google accounts for synchronizing with Google Wallet.

My first Wallet purchase was at CVS, where I picked up two boxes of tissues and a pack of AA batteries. I waited in the checkout line in anticipation of paying with just a casual wave of my phone. But when the checkout person asked if I had the CVS loyalty card, I still had to dig the card out of my wallet to swipe it for discounts. Once that was done, I waved my phone at the payment terminal, entered my four-digit security code and walked away.

When I bought lunch at McDonald’s, a woman nearby was in awe of my wave-to-pay method and said she couldn’t wait to get it. At 7-Eleven, the man working the register seemed startled by how quickly I paid for a bottle of water, especially after the guy in front of me had spilled several coins and bills on the counter to pay. I used my Google Prepaid Card at CVS and used my registered MasterCard at McDonald’s and 7-Eleven. Each card is represented in the app with an image of a credit card. My Citi MasterCard was the right blue hue and even had my name on it, with just the last four digits of the card number visible.

I added my Citi MasterCard to Google Wallet by entering my credit card information and creating a nickname for the card. After waiting a few seconds for the app to verify my information with Citi, an on-screen message said my card had a $100 limit, but that I could activate my full credit line using a code sent via text message to my cellphone number. This also allowed me to see more data about my account like my last statement balance, current balance and the last payment due date.

If a phone’s screen is in sleep mode, a user must wake it in order for transactions to work. This step was purposely added so people don’t unknowingly buy something when they walk by a PayPass terminal. The four-digit security code has an adjustable time-out period that can last for as little as one minute or as long as 30 minutes. I adjusted my code time-out to 15 minutes and was able, in two tests, to swipe my phone without entering the code.

Google Wallet can’t hold your driver’s license or other official forms of identification, so even if it takes off and works everywhere, you’ll still have to carry your license with you.

Write to Katherine Boehret at katie.boehret@wsj.com.

As part of the announcement, Google declared that it will also be working with Visa, American Express and Discover in addition to its original partners MasterCard and Citi to bring the technology to more consumers.

The Google Wallet will be pushed to owners of the Sprint Nexus S 4G in an over-the-air software update, according to a Google blog post.

The announcement has been expected since May, when Google unveiled its plans for an official launch this summer.

Still, the rollout is more symbolic today than anything since the impact to consumers will be small until near field communication is adopted more widely by merchants, carriers and wireless handset makers.

The addition of Visa, American Express and Discover into the offering will help some of the adoption concerns as more cards can be added to the Wallet in the future versions.

Users will be able to tap and pay at roughly 150,000 terminals in the U.S that are enabled by MasterCard’s PayPass technology. And, with the addition of Visa, Google also will have access to Visa’s payWave NFC-enabled terminals totaling “hundreds of thousands of retail locations worldwide,” according to a statement by Visa.

The launch comes on the heels of PayPal unveiling its competing digital wallet strategy last week in Rancho Palos Verdes, Calif.

PayPal believes it will reach a larger segment of the population faster, because it is not relying on as much technology.

Meanwhile, Google Wallet customers will be restricted to those with a Citi MasterCard (or prepaid card) and an Android-powered Nexus S from Sprint. Additionally, the merchant will have to have a MasterCard PayPass-enabled payment terminal.

PayPal anticipates having at least one major pilot by the end of the year, with a more major rollout slated for April; Google had previously pegged summer for a mobile payments launch.

In an interview, MasterCard’s head of mobile, Mung Ki Woo, defended the search giant’s approach to the market.

He said MasterCard already has 300,000 PayPass-enabled terminals worldwide, of which half are in the U.S. That number is growing, Woo said, but there is still a long way to go to upgrade all 30 million in existence.

Besides eBay-owned PayPal and Google, dozens of companies are rushing into the space, including American Express; Visa; the wireless carriers, through an intiative called ISIS; and start-ups, too, including Square.

But it’s not clear how quickly consumers will flock to change payment technologies, especially near field communication. which, according to some, will take at least three years to become widespread.

“Very much so, yes, we are in favor of NFC,” Woo said. “It’s going to take a little bit of time. Consumers will need to change handsets, but at the same time, they do it quite frequently now. And we also expect the number of locations equipped with PayPass will increase.”

At a recent MasterCard event in New York, the company demonstrated a number of scenarios for mobile payments. One of the examples that resonated best with people, Woo said, involved vending machines. ”They don’t accept credit cards, so they thought this was very cool,” he said.

Other areas of focus are everyday items, like gas, groceries and other necessities, including bus or train tickets, where the headache of standing in a line can be eliminated. Google already allows you to search for businesses in your ZIP code that accept the system. A quick search in Seattle shows a number of nearby fast-food restaurants and pharmacies that will take it.

Woo said that although there may be some lag as the infrastructure gets up to speed, he had two comments on PayPal’s approach to the market.

Last week, PayPal said one of its strategies was to allow people to enter their phone number and PIN at the terminal to pay, which would eliminate the need to carry a phone or a wallet.

Woo said, “It looks like a slow and clunky experience. Today, you can swipe your card; tomorrow, you will have to enter a phone number on the keypad. It seems to be slower than simply tapping your phone.”

Additionally, he wonders how much work the merchant will be required to do on the back end, so that users only have to enter their phone number at the terminal. “PayPass is compatable with existing back-end processes. There’s a real question as to whether, in trying to avoid any change on the front end, you are pushing everything to the back end.”

Another big difference between the two is that PayPal will be making money by charging for payments, whereas Google will be providing the service for free and making money from coupons that are offered to consumers, a la Groupon.

Woo would not say when Google Wallet was launching, though he allowed that “it’s going to be very soon.”

In addition, he said that after the launch, the ecosystem will expand quickly. “You’ll see a lot of merchants coming online, and a lot of announcements.”

Ironically, the event took place at Terranea, which was the same resort where Google demonstrated its Wallet and Offers platforms at the D Conference only three months ago.

Since then, not only has the space heated up, with all the major players announcing their plans, but so has the rivalry between the two Bay Area companies. PayPal filed a lawsuit against Google for stealing trade secrets and key employees, and now they will compete for the attention of merchants and consumers.

In an interview, PayPal’s president, Scott Thompson, explained how the online payments leader was different, and why he believes the space will take off “faster than you ever imagined.”

In demonstrations earlier in the day, PayPal showed me a number of different scenarios, including using a phone number and PIN code to replace swiping a credit card at the payment terminal. It is also integrating check-in capabilities to its mobile application and location-based services to identify nearby stores or restaurants. What it won’t be doing is relying on near-field communication technology or implementing an offer network, unlike Google’s approach to the market.

Thomson, in his thick Boston accent, was eager to share his side of the story, after hearing so many other competitors go before him. Here are some highlights from the interview:

What problem are you solving?

Thompson: An offline merchant today is seeing slow to no growth. It’s tough. E-commerce companies are still growing, and if you have both, you are seeing slow to no growth.

First, we know merchants are worried about consumers coming to you from all different ways — online, in-person, mobile, etc. Multichannel retailing is real for them.

Second, retailers are asking “Who is the customer?” If you visit the site, we know. There’s a wealth of information about them. In offline, they don’t even know you are in the store.

You are battling the competition with your hands behind your back. The question is “How do I close the loop? How do I know that Tricia’s here?” Our solution does close that loop.

What about NFC? In the four presentations I saw, it wasn’t used once.

Thompson: We are not embracing technology, we are solving the problem of what can I do today. It’s hard for me to speak [about NFC] until there are standards. You can’t ask retailers to implement three to five standards.

We can’t be so bold or arrogant to think that you’ll adopt to the standards we’ve created. If we said “Throw away your terminals and get a new one, or buy a new phone” — no one has that level of influence and pull to say “You’ll have to adopt to the standards we’ve created.” … We will work with the new and the old.

If we only built something that worked with this phone, this bank, and this network and NFC, you might address 50 people out of the 350 million people in the U.S. We hope that all 350 million people use what we are doing today.

You boldly predicted recently that by the end of 2015, digital money will be accepted everywhere in the U.S. Some people think you are nuts!

Thompson: This wave is going to happen faster than you think. If every consumer can pay with PayPal with a mobile phone number and a PIN, then I don’t ever have to reach and find this [Thompson pulls his money clip out of his pocket].

Why is that a possibility? There’s lots of reasons!

The value to the merchant is compelling, and the other thing that’s true is that there’s been a lot of compression of credit. A whole lot of people don’t have credit cards, and there’s a higher number of debit transactions. That’s an important change, if your debit card is compromised. The bad guys will get your money. I need more security than ever before. So, will it happen? Will it be fast?

It will be faster than you ever imagined. The one that wins will be the wallet that lives with you everywhere.

How important is this intiative to PayPal? It has spent hundreds of millions of dollars in acquisitions to get to this point.

Thompson: At analyst day, we said we would double our business by 2013, and those numbers don’t take into account any revenues from this point-of-sales initiative we are working on. This is going beyond to the next three-year commitment.

We’ll see revenues next year, but we are planting the seeds now [for 2014]. We said revenues would total $6 [billion] to $7 billion in 2013. To continue to grow at the same rate in 2014, you better do things now. We see an opportunity. We see technology changing, and now is the time to invest.

Just because you aren’t using NFC right away, doesn’t mean you won’t have a steep adoption curve. You’ll have to sign up offline merchants and get consumers on board.

Thompson: Our work is hard, and the relationships we’ll forge will be hard, too. You’ll see next year, when we formally announce our partners, that they are very big merchants.

[On the consumer side] If merchants see value, and integrate it and push it, consumers will use it. It will become a natural thing for you to use it in the grocery story or the pharmacy. You’ll be able to use it for everyday spending — that’s age-old logic. If the companies with the most foot traffic use it, it will be adopted.

So, it’s not for the mom-and-pop coffee shop?

Thompson: It’s where you are most frequently visiting.

Let’s talk about the competition. There’s American Express, Visa, MasterCard, Google and others, like Square, all coming up with different mobile payment strategies.

Thompson: I love it! I actually do!

It reinforces that the opportunity is big. I find it humorous that they find it a novelty. It wasn’t long ago — after all these years of them saying that no one needed a [digital] wallet — that they are saying that the wallet is now important and we better have one.

Besides, this is not unique to PayPal, but we play better the more sophisticated the competitor is. It’s remarkable how competitive our organization is.

Other payment providers are rolling out wallet technology for the chance to offer coupons or offers to the consumers — which could be a lucrative local advertising strategy. Will you be doing the same?

Thompson: In subsequent releases, merchants will be able to do things in the wallet, like offer coupons, but it is not our intention to compete in offers. We are doing payments.

I talked to a major retailer recently that said they’d find it a conflict if the payments provider offered discounts, rather than the retailer being the one to own the relationship with the consumer.

Thompson: That’s where we are different. The others are about coupons and advertising. We are about payments. That’s where 110 percent of our focus is. I believe we have this right. This will be a really big phenomenon in the multichannel world. We are in the business to help merchants grow their business. We are not trying to take the customer relationship away from them.

If we do our job right, all of our businesses will grow.

A sneak peek was offered to merchants today by the eBay-owned company, at a partner event in Rancho Palos Verdes, Calif., and separately to me in one-on-one briefings by executives.

PayPal had said it was going to launch pilot projects later this year, but this is the first time it is discussing how it will approach the digital market and how it will defend itself against incumbent payment providers like Visa, MasterCard and American Express, and new entrants like Google and San Francisco-based Square.

There were roughly 150 merchants present at the event, including Home Depot and Sports Authority.

In the resort’s ballroom overlooking the Pacific Ocean, PayPal set up several user scenarios that are intended to disrupt the way we pay for things online and in stores today, using a variety of technologies.

What stood out was that none of the scenarios required merchants to adopt new infrastructure or buy new terminals. Likewise, customers won’t be required to upgrade their phones or have certain types of bank accounts.

Instead, PayPal users (of which there are 100 million worldwide) will be able to pay by entering a phone number and a PIN code at the existing payment terminals, or by swiping a PayPal-issued card that’s not associated with a bank and does not have an account number printed on the front.

“We are doing something so big that it will change the face of payments,” said PayPal President Scott Thompson. “We can’t be so bold or arrogant to think that you’ll adopt to the standards we’ve created. If we said ‘Throw away your terminals and get a new one, or buy a new phone’ … no one has that level of influence and pull.”

“We will work with the new and the old,” he added. [More information from Thompson in a Q&A can be found here.]

A lot of criticism has surfaced recently that new mobile payment solutions relying on near-field communication will take three-plus years to adopt, because of the infrastructure required by merchants and consumers.

Others have pointed out that near field doesn’t exactly solve a problem for consumers, since swiping cards at retail is easy enough.

“No one is solving the friction in the entire payments process. We are not going to change consumer behavior,” admits Sam Shrauger, PayPal’s VP of global product and experience.

No photography was allowed at the event today, but PayPal walked me through the scenarios, demonstrating how the technology would work. A lot of it was repetitive, so here’s a brief overview:

Grocery store: In this senario, PayPal demonstrated how someone could use their phone number to pay. At the payment terminal, a user will be able to enter their phone number and a PIN code. The purchase will then be applied to the bank account or credit card associated with their PayPal account.

Coffee shop: In this scenario, PayPal demonstrated how it will allow users to continue using plastic cards if they wish. The card will be issued from PayPal and will not have a Visa or MasterCard logo on the front, and will contain no visible account information. As usual, the card will be swiped at the terminal and have an associated PIN.

Hardware store: In this scenario, a customer in a store sees a barbecue set that they’d like to buy. Using the phone, they scan the item’s barcode. PayPal would find that exact product that is in stock at that retailer, and the user would be able to check out in the store aisle and have the item shipped to his or her address, without ever going to the register.

All of PayPal’s scenarios had a few things in common. For example, users would be able to check in to a retailer’s location from the phone, like on Foursquare. That would enable a merchant to know that they are there, so they can interactively offer you coupons, or so you can place an order.

PayPal will also let users immediately apply for credit, so they can buy a new TV and pay in six easy installments!

The mobile application is also front and center in all of these use cases. Users will be able to find nearby retail locations and check in using a mobile application.

PayPal has stitched all of these technologies over the past year from several million-dollar acquisitions, including the acquisitions of BillMeLater, Milo, Where and Zong.

BillMeLater enables PayPal to extend users credit on the fly; Milo allows PayPal to look up the inventory within major stores; Where provides location-based offers; and Zong provides mobile payments using your phone number.

The approach is vast and a little hard to grasp without seeing it in person. Here’s a video provided by PayPal: