PayPal Looks to NCR to Expand In-Store Offerings

By Andrew R. Johnson

PayPal has struck a deal with one of the largest providers of retail-checkout technology to distribute loyalty offers and other services to consumers through physical merchants.

The deal with NCR Corp. ( NCR ), expected to be announced Tuesday, is the eBay Inc. ( EBAY ) subsidiary's latest effort to spur adoption of its in-store payments service with brick-and-mortar retailers--a relatively new frontier for PayPal.

"We're going to be in millions of locations," Don Kingsborough, a vice president with PayPal, said Monday night during a briefing with reporters.

Known primarily as a service allowing consumers to purchase goods online through accounts that can be funded with existing credit and debit cards as well as bank accounts, PayPal last year embarked on an endeavor to get merchants to offer it as a checkout option in their physical stores.

Customers can transact through merchants who sign on to the service by either typing in their mobile phone number and personal-identification number on a retailer's PIN pad or swiping a plastic PayPal card. Both options allow a customer to fund a transaction using the cards and bank accounts they have registered in their PayPal account.

In August, PayPal announced a deal with credit-card lender and payments network Discover Financial Services ( DFS ) through which Discover is equipping its more than 7 million merchant locations to accept PayPal. The move is intended to help PayPal rapidly expand its footprint and bypass the need to strike one-on-one agreements with individual retail chains.

The deal with Duluth, Ga.-based NCR will build on that relationship, executives with the companies said, by allowing merchants to let PayPal users to order from a restaurant's menu, receive discounts and other functions directly through PayPal's app.

NCR's hardware is especially common in the restaurant and hospitality industry. The company says 38% of the top 100 U.S. restaurant chains use its technology, and it has deployed more than 100,000 self-checkout kiosks to retailers.

Mr. Kingsborough and John Bruno, NCR's chief technology officer, declined to discuss the companies' financial arrangement.

Deals with Discover and NCR are "critical" to PayPal's success with physical merchants because the service needs to be ubiquitous for consumers to adopt it, Mr. Kingsborough said.

"Wherever you're shopping you have to be able to use it," he said.

PayPal's move in to brick-and-mortar merchants pits the company squarely against Discover's larger card-network rivals Visa Inc. ( V ), MasterCard Inc. ( MA ) and American Express Co. ( AXP ), which have long had a lock-down on physical merchant's points of sale but are facing increasing competition from new entrants offering what the payments industry is dubbing "digital wallets." Such services allow customers to aggregate card information from various banks in to special mobile apps that can then be used to pay for transactions. One method of doing this occurs when a customer taps a smartphone equipped with a technology called near-field communication, or NFC, against a merchant payment terminal that also contains the technology.

The card networks are partnering with some of those players, such as Google Inc. ( GOOG ) and Isis, a service jointly developed by wireless carriers AT&T Inc. ( T ), T-Mobile USA and Verizon Wireless. They are also offering or developing their own services under their respective names.

PayPal said Monday it had agreements with 23 merchants to offer its in-store service to customers as of the end of the year, up from 16 announced in May. The retailers include Famous Footwear, Dollar General Corp. (DG), Barnes & Noble Inc. (BKS) and Home Depot Inc. (HD), which was the first to begin rolling out the service last year and has since made it available in about 2,000 stores, said Dwaine Kimmet, treasurer and vice president of financial services for the home- improvement retailer.

Mr. Kimmet said transaction volume from the PayPal service in Home Depot stores remains "small" but is on track with the company's expectations.

Twelve of the 23 retailers are live with the system, representing 18,000 locations, Mr. Kingsborough said. The Discover deal will enable it to reach about 7.2 million merchant locations this year, he said.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

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