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.”

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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:

If the company is successful, it will have quadrupled its worth since raising $100 million at a $1 billion valuation only 10 months ago.

While that would be astonishing for a three-year-old company, it’s important to note that negotiations continue, and that investors could ultimately value the company at a slightly more modest number (hmm, like $3 billion?!).

A Square spokesman declined to comment.

Square, which was founded by Twitter inventor Jack Dorsey, has quickly made accepting credit cards via a mobile phone into a mainstream and affordable concept for small merchants.

Over the past year, it has quickly expanded beyond handing out magnetic-swipe readers to offer more robust experiences for both consumers and merchants, including software on the Apple iPad that acts like a register, and software on the iPhone that is a virtual wallet.

The payments method has received a warm reception from mostly small businesses, including taxicabs, food trucks, coffee shops and even lawyers and accountants.

The rumors of Square looking to raise more capital started spreading after Owen Thomas, formerly of the Daily Dot, noticed that Dorsey and Square’s COO Keith Rabois were in Boston and Baltimore, where many institutional investors are based. Thomas called Legg Mason, which confirmed it was looking at the San Francisco company.

Previous investors in Square’s three rounds, totaling roughly $137 million, include Kleiner Perkins Caufield & Byers, Tiger Global Management, Sequoia Capital, Khosla Ventures, Visa and well-known entrepreneur Richard Branson.

The big question is whether Square will be able to demand such a hefty valuation.

To determine that, based on what is known about the company, I did some back-of-the napkin calculations to come up with its annual revenue.

Last month, the company said it is now processing $4 billion in annual transactions. Since we know that Square charges 2.75 percent per swiped transaction, and 3.5 percent plus 15 cents per keyed-in transaction, we can start to get a better picture of its finances.

Let’s assume that a quarter of the company’s transactions are keyed in — which demands the higher rate. That would mean the company’s revenue would total nearly $83 million for swiped transactions, and $35 million for keyed-in transactions. Because of the additional 15-cent fee per transaction, let’s add another $15 million (which might be generous, but would break down to 100 million transactions at $10 apiece).

In all, the company’s annual revenue would then be close to $122 million.

Most, but not all of that revenue, is then handed over to the credit card companies for processing fees.

To be sure, the company has grown quickly since its inception, and has its eyes set on the very large point-of-sales market. This year, Square said it had plans to expand internationally, and has just hired a new executive from PayPal to take the lead on the effort. In the future it could also generate revenue from advertising or other loyalty programs, although it does not today.

But, by at least one historical measure, the valuation is rich beyond belief.

PayPal, which was also looking to disrupt the banking industry by enabling peer-to-peer payments online, was sold for $1.5 billion to eBay in 2002, just months after going public at a valuation of nearly $800 million.

At the time it went public, the company was roughly doubling year over year and had generated $103.7 million in 2001, its first full year of operations — or slightly less than Square’s estimated revenues.

Much like PayPal back then, Square faces intense competition, making alliances with much larger companies or raising big war chests critically important.

Square faces stiff competition and pricing pressure from Intuit, eBay’s PayPal, Google and other upstarts, like Pay Anywhere.

Still, it has made a splash that is seeing major reverberations around the sector, which a big valuation will make larger still.

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.”

A month ago, I posted an initial list of speakers for the 10th D: All Things Digital conference.

After a decade, the event — which is held in Rancho Palos Verdes, Calif., just south of Los Angeles, at the end of May — has attracted another amazing group of speakers, including: New York City Mayor Michael Bloomberg; serial entrepreneur Sean Parker, who will appear with Spotify co-founder and CEO Daniel Ek; Zynga founder and CEO Mark Pincus; Federal Trade Commission Chairman Jon Leibowitz; LinkedIn Chairman and VC Reid Hoffman, who will appear with the social business site’s CEO Jeff Weiner; and Skype CEO Tony Bates.

Now, here’s another group of stellar speakers we’ve added to the programming lineup (and there are still even more big names to come in the weeks ahead): Oracle CEO Larry Ellison; former tech analyst superstar and now VC Mary Meeker of Kleiner Perkins; Intellectual Ventures’ Nathan Myhrvold; Pixar co-founder and Disney animation head Dr. Ed Catmull; and Visa President John Partridge.

Larry Ellison, CEO and founder of the enterprise giant Oracle, needs little introduction, as one of tech’s highest profile figures and a true Silicon Valley icon. Frankly, I think the short bio that’s on Oracle’s Web site says it all: “Larry Ellison has been CEO of Oracle Corporation since he founded the company in 1977. He also races sailboats, flies planes, and plays tennis and guitar.” There will be a lot to talk about with the voluble and always entertaining exec — who appeared at the D conference once before many years ago — from the current state of the tech industry to insights to where it’s all going. (In addition, Ellison has agreed to appear on a panel we are doing as a tribute to his close friend, Apple’s former CEO Steve Jobs.)

Another well-known tech figure is Meeker, who is now a partner at Kleiner Perkins Caufield & Byers, having joined the storied venture capital firm in early 2011. She focuses there on investments in its digital practice and via KP’s Digital Growth Fund, working with companies such as Spotify, Jawbone and One King’s Lane. But Meeker is perhaps best known for her long stint — 1991 to 2010 — as a star Internet research analyst at Morgan Stanley, where she brought many of the Internet’s great companies to the attention of Wall Street and beyond. She also wrote a series of groundbreaking reports on the landscape. That includes her annual “State of the Internet,” which Meeker will debut this year at the conference in an extended demo of her always riveting Internet trends presentation.

Nathan Myhrvold is also a tech legend, having worked for 14 years as chief strategist and CTO of Microsoft. But, instead of retiring, the avid inventor decided to focus on patents, founding and leading a controversial company called Intellectual Ventures, which buys them up and licenses them out (or sues if it doesn’t sell). With all the mishegas around patents right now, it’s a good time to have Myhrvold back to explain it all and perhaps to take some of the blame for the explosion in intellectual property lawsuits. (Myhrvold also co-authored a cookbook, “Modernist Cuisine,” so we hope we will also get some sort of futuristic cooking demo. Perhaps, Patently Delicious Flan?)

Speaking of tasty, the animation from Pixar over the years has been just that and it’s been one of Disney’s greatest acquisitions. Given how much Pixar has contributed to animation technology, we are glad to finally get Dr. Ed Catmull onstage. As co-founder of Pixar Animation Studios and president of Walt Disney and Pixar Animation Studios, he will discuss where entertainment and technology are intersecting and where they are not. Catmull is a geek’s geek in the industry — having also founded the computer graphics laboratory at the New York Institute of Technology, the computer division of Lucasfilm, as well as Pixar, which he did with chief creative officer John Lasseter. Get ready to talk about image compositing, motion blur, subdivision surfaces, cloth simulation and rendering techniques, texture mapping and the z-buffer. Also, Catmull’s five Academy Awards.

Lastly, it is perfect timing for bringing on John Partridge, president of Visa. With swirling issues around online identity theft, digital privacy, the future of money and the rise of upstart competitors such as Square, Partridge has his hands full at the credit card giant. One of the most neglected arenas in tech, the way we manage payments is perhaps the biggest story of the next era, especially as it relates to mobile and the rise of smartphones as all-purpose devices.

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.

The news, released Sunday night in a statement, came after the company received a fresh blow over the weekend when Visa Inc. yanked its seal of approval from the company.

Read the rest of this post on the original site »

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.”

The company, which is backed by North American Bancard, a privately held credit card processing company, launched its service about a year ago and is arguably less-known than others, such as Square, run by Twitter’s Jack Dorsey and backed by Visa, Intuit’s GoPayment, or PayPal.

In order to try and change that, Pay Anywhere plans to announce today a price drop to make its rates one of the lowest in the sector — by a very slim margin.

It will now charge 2.69 percent of each transaction; in other words, $2.69 for every $100 charged.

In comparison, eBay-owned PayPal, which unveiled its PayPal Here service on Friday, is charging merchants 2.7 percent of each transaction. Intuit also charges 2.7 percent; Square charges a slightly higher 2.75 percent.

Before today’s cut, Pay Anywhere was charging 2.69 percent, plus a flat rate of 19 cents per transaction, making it one of the most expensive. (A spokeswoman said the Pay Anywhere app has been downloaded more than 100,000 times since it launched. Pay Anywhere and North American Bancard does a combined $12 billion in business annually, but she declined to say how much Pay Anywhere processes alone.)

The practice of charging a flat rate and a percentage was common around a year ago, but the payment structures have changed drastically as the competition heated up. For instance, it also used to be common for providers to charge for the credit-card readers, which plug into smartphones. Those are now free, too.

But it’s unclear whether merchants will be attracted to lower interchange rates alone.

Other considerations to take into account are additional features, such as security or software. A good analytics program on the phone can track a store’s inventory; Intuit offers integration with its commonly used QuickBooks software. Square offers cash-register-like services, and PayPal says it will offer the ability to accept checks by snapping a picture of the check using a phone’s camera.

Likewise, Pay Anywhere touts many of these features, including a “built-in Heat Map” to locate sales trends.

While all of these providers are competing against traditional credit card processors and integrators that typically sell both hardware and services, they are also largely going after a different market — the massive offline business that is conducted in cash or by check.

Many merchants, from farmers to taxicab drivers, have been reluctant to pay the high rates that traditional card-processing services charge today, and only accept cash — or visibly cringe whenever a customer pulls out plastic.

MarketWatch reports that McCarthy then gave the example of someone watching a PayPal-paying customer enter private data into a payment terminal to complete a transaction — essentially exposing the data.

PayPal’s response? With PayPal, the company said as part of a lengthy statement, your financial information can’t be lost or stolen from your wallet, your card or on your phone — and it’s safer in PayPal’s cloud than in your pocket.

“PayPal is leading payments innovation for frustrated merchants and consumers limited by legacy systems and approaches. In the same way that PayPal drove innovation online over a decade ago by making shopping easier, we are listening and responding today to what merchants and consumers are crying out for — point-of-sale payments innovation that offers value, convenience and security anytime, anywhere,” the statement read.

The eBay-owned company went on to say that it processed almost $120 billion last year in global online payments volume, with the lowest loss rate in the online payments industry, and reiterated that it believes it can scale its services to meet the potential growth in transactions that would occur offline, too.

Visa’s assertions pertained specifically to PayPal’s new in-store payments system, through which PayPal customers can enter their PayPal payment info or use a PayPal credit card to purchase items at select retail stores.

At this time, Home Depot is the only merchant that has publicly announced it is using the system. The big-box retailer first began experimenting with the system late last year, allowing PayPal employees to purchase things at the store. Recently, the PayPal in-store payment options were rolled out to all paying customers with a PayPal account.

The jabs over payments security comes as many companies — from Visa to PayPal to Google — scramble to innovate in the mobile and Web payments space.

Visa recently unveiled more details about V.me, its upcoming “digital wallet” that uses a PayPal-and-Amazon-like payment system. Consumers will carry a balance in the digital wallet, using a variety of sources — a Visa, MasterCard or bank account — and it will enable them to check out using just a user name and password, rather than having to enter credit card information. American Express is doing this, as well.

But, as an analyst points out, PayPal is probably going to cause headaches for traditional credit card companies by undercutting fees that merchants currently pay to accept the traditional networks’ cards.

And PayPal pretty much confirmed that in its statement: “As PayPal delivers point-of-sale innovation, we intend to offer competitive pricing to merchants at greater value compared to the existing legacy providers and potential PayPal imitators.”

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 Mountain View, Calif.-based company tries to boost online companies’ revenue by placing targeted promotions and offering incentives at the point of checkout.

It’s a bit similar to how grocery stores try to boost sales by strategically placing tabloid magazines, gum and candy bars at the register to spur last-minute impulse buys.

Instead, TrialPay makes last-minute offers to give people incentive to make a purchase when they are on the fence.

As an example, TrialPay’s CEO Alex Rampell said that when people visit Fandango’s site, they may get an offer for a free movie ticket if they sign up for Netflix. Or, in a Zynga game, you might be offered a virtual bouquet for free, in return for purchasing real flowers on Valentine’s Day.

Visa’s participation in the investment, which is being announced later this morning, is rare. Over the years, the payments company has made a few acquisitions, including PlaySpan, CyberSource and Fundamo, but Visa’s only investment in recent memory was in payments darling Square, which allows anyone to accept payments using a cellphone.

Rampell said that with Visa’s help, TrialPay will be able to expand to offline merchants from working exclusively with online retailers, by giving it a way to track if a person visited a store and made a purchase.

“The question is, how do we send traffic to Starbucks or McDonald’s or any other offline merchant?” Rampell said. “We already have access to people online who are buying or thinking about buying something. It would be great if we could could give you 20 virtual coins if you shopped at McDonald’s. But how do we close that redemption loop?”

Today, TrialPay, which has 130 employees, reaches more than 70 million monthly active users worldwide. In 2011, Rampell said, revenues more than doubled; he declined to offer specifics.

Rampell also declined to provide details about potential partnerships with Visa. Visa also declined to comment.

Investors in the company’s fourth round included new investors Greylock Partners, Visa Inc., T. Rowe Price, DAG Ventures, DFJ Growth and QuestMark Partners. Existing investors also participated. To date, it has raised roughly $70 million.

For more of Rampell’s opinions on how the payments space will evolve, check out his Web 2.0 speech from October:

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.

As I reported late last night, Yahoo said it had named PayPal President Scott Thompson as its new CEO. The exec is currently in charge of the large eBay online payments unit.

He’ll start next week, but there are staff conference calls today and also an all-hands meeting on Yahoo’s main Silicon Valley campus (meet at URLs, troops!) tomorrow.

Yahoo shares are down almost three percent on the news so far, as Wall Street has been hoping for a big sale of some sort and not another turnaround.

Yahoo will be holding a 7 am PT press conference about the move and presumably to swan around Thompson.

(Welcome, Scott! I hope you were informed — please do not listen to what co-founder Jerry Yang says on this important issue — that you are supposed to send all internal memos to me! Also, as one of my Twitter followers, Mike Dudas of Google just tweeted: “If Thompson leads companies as well as he grows a moustache, Yahoo made a great CEO choice!!” I concur.)

A Yahoo PR person confirmed the hire very cordially in a phone call early this morning and the Internet giant also put out a press release.

So did I, of a sort, last night. Given I am too tired to rewrite myself, here is what I had reported:

The company fired its last CEO, Carol Bartz, in September, and Yahoo has been run by the board and also by interim CEO Tim Morse, who had previously been its CFO.

After Bartz’s ouster, Yahoo said it was looking at a range of strategic options, including the possible sale of all or part of the company.

That was the focus at first, although Yahoo had simultaneously hired Heidrick & Struggles to look for a new CEO.

The company attracted two partial investment bids from private equity firms, Silver Lake and TPG Capital, but shareholders were unhappy with the low prices of these so-called PIPE — Private Investment in Public Equity — arrangements.

Yahoo then moved to try to strike a tax-advantaged deal with its long disgruntled Asian partners, China’s Alibaba Group and Japan’s SoftBank, to sell back parts of the large stakes it has long owned in Alibaba and Yahoo! Japan.

Those complex negotiations are still ongoing and look promising, which could yield Yahoo billions of dollars in capital to be given to investors, for stock buybacks or to invest in new initiatives.

Since then, the board — long considered one of the more cloddish in tech — has turned its attention to hiring a new CEO, in the hopes of trying once again to revive its flagging fortunes.

Thus, it began looking to hire someone with deep tech experience at a large public consumer Internet company in Silicon Valley.

That narrowed the field, with Yahoo looking at a range of choices with expertise in advertising, technology platforms and more.

There is a lot of that on the deep bench that eBay CEO John Donahoe has assembled at the online commerce giant, including Thompson.

Plus, he is a genuine Internet geek.

According to his eBay bio, Thompson became president of PayPal in early 2008, after serving as its CTO in charge of information technology, product development and architecture.

Before eBay, he worked at Inovant, a subsidiary of Visa formed to oversee global technology for the organization. He was also CIO of Barclays Global Investors and has worked at Coopers and Lybrand on information technology.

And here’s a tasty new wrinkle: Thompson recently “liked” Yahoo on his Facebook page, along with the decidedly more interesting Kickstarter and Splunk.

Again, Scott, thanks for the Facebook tip — I knew the social networking site could come in handy!

(Also, here is an interview I did with him post-announcement.)

And here is Yahoo’s official press release where Yahoo Chairman Roy Bostock says nice stuff about Thompson:

YHOO_News_2012_1_4_General

According to sources close to the situation, Yahoo is poised to name a CEO, an announcement that could come as early as tomorrow.

Sources said the leading candidate likely to get the nod is a dark horse and someone who has not been named in previous reports (and not on my suggested lists!): PayPal President Scott Thompson, who runs eBay’s massive online payments unit.

While the situation could certainly change, the Yahoo board has definitely been moving aggressively of late to try to find a new leader for the Silicon Valley Internet giant.

The company fired its last CEO, Carol Bartz, in September; Yahoo has been run by the board and also by interim CEO Tim Morse, who had previously been its CFO.

After Bartz’s ouster, Yahoo said it was looking at a range of strategic options, including the possible sale of all or part of the company.

That was the focus at first, although Yahoo had simultaneously hired Heidrick & Struggles to look for a new CEO.

The company attracted two partial investment bids from private equity firms, Silver Lake and TPG Capital, but shareholders were unhappy with the low prices of these so-called PIPE — Private Investment in Public Equity — arrangements.

Yahoo then moved to try to strike a tax-advantaged deal with its long-disgruntled Asian partners, China’s Alibaba Group and Japan’s SoftBank, to sell back parts of the large stakes it has long owned in Alibaba and Yahoo! Japan.

Those complex negotiations are still ongoing and look promising, which could yield Yahoo billions of dollars in capital to be given to investors, for stock buybacks or to invest in new initiatives.

Since then, the board — long considered one of the more cloddish in tech — has turned its attention to hiring a new CEO, in the hopes of trying once again to revive its flagging fortunes.

Thus, it began looking to hire someone with deep tech experience at a large public consumer Internet company in Silicon Valley.

That narrowed the field, with Yahoo looking at a range of choices with expertise in advertising, technology platforms and more.

There is a lot of that on the deep bench that eBay CEO John Donahoe has assembled at the online commerce giant, including Thompson.

Plus, he is a genuine Internet geek.

According to his eBay bio, Thompson became president of PayPal in early 2008, after serving as its CTO in charge of information technology, product development and architecture.

Before eBay, he worked at Inovant, a subsidiary of Visa formed to oversee global technology for the organization. He was also CIO of Barclays Global Investors and has worked at Coopers and Lybrand on information technology.

And here’s a tasty new wrinkle: Thompson recently “liked” Yahoo on his Facebook page, along with the decidedly more interesting Kickstarter and Splunk.

(Dear Scott, Nice to meet you. And thanks for the tip! FYI, it’s a juicy giveaway like that which feeds my insatiable quest to find out All Things Yahoo!)

More to come soon, I expect.

Yahoo, as usual, never got back to me on my query, although the much more cordial people at eBay politely declined to comment.

According to Experian Hitwise, the top search query the week before Christmas that included some variation of the term “gift card” was for “kindle gift card.” Apple’s iTunes gift card was not even close, ranking as the eighth most searched-for term. In between were several more generic combinations, including American Express or Visa, or terms like “cheap gift cards.”

This holiday season, spending on gift cards was expected to hit $27.8 billion, a four-year high, according to a survey conducted by the National Retail Federation.

The plastic versions of cash were the most requested items on people’s wish lists for the fifth year in a row. What was unusual was the increased number of shoppers who were willing to give them, shedding concerns about looking impersonal or lazy.

The average shopper was expected to spend $155.43 on gift cards, the highest amount since 2007.

Experian theorized that the Kindle gift card, in particular, was searched for so heavily because it made a practical companion gift to the record number of e-readers being purchased. It also said that the increase in gift card purchases drove higher traffic to retailers’ Web sites on Christmas Day, with visits up 31 percent year over year.

But what if you got a gift card you don’t want, or one for a restaurant or theater that doesn’t exist in your hometown?

There’s a secondary market for that.

Companies such as PlasticJungle.com, GiftCardRescue.com and CardPool.com will give you up to 90 percent of the voucher’s value — depending on the demand for the card. Likewise, you can also purchase gift cards for below face value on these sites.

Even better, if you didn’t get a Kindle gift card but wanted one, PlasticJungle and GiftCardRescue both have partnerships with Amazon that will give you an extra 5 percent on the value of the unwanted card if you swap it for an Amazon gift card instead of cash.

Whatever you do, experts suggest you don’t put the cards in a drawer and forget about them. The best deals are being offered now, so spend them.

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.”