REPORT David Franklin, [email protected], 215.493.4104

PayPal Well Positioned Once Consumers Take to Mobile Payments in Stores

Companies: AAPL, AMZN, AXP, DFS, DNKN, EBAY, EPA:ING, GOOG, GRPN, INTU, MA, PAY, SBUX, V March 1, 2013

Research Question:

Will an increased retail presence and recent partnerships spur consumer utilization of and growth for PayPal’s offline and mobile payment strategies?

Silo Summaries Summary of Findings 1) MERCHANTS  All Fourteen merchants, PayPal (eBay Inc./EBAY) competitors These three merchants representing more than 4,390 stores and industry specialists said PayPal‟s partnerships with 23 either already accept or are in the process of integrating PayPal as an in-store payment option. Consumers‟ use of national retailers and Discover Financial Services (DFS) will PayPal or other mobile payment options is limited. However, expand the use of its mobile and offline options for in-store all three sources expect PayPal transactions to increase payments. during the next two years as in-store mobile payments become more mainstream. PayPal needs to address the lack  Consumers‟ in-store use of alternative payment options is very of consumer awareness, the need for an NFC solution, and limited. Adoption will not become widespread for two to five its customer service. Competition is expected from Google years. Wallet and Apple.

 Lack of consumer awareness, the absence of rewards points or 2) PAYPAL COMPETITORS airline miles, minimal NFC capability, and a crowded and Six of these seven sources cited PayPal‟s partnerships with confusing market have slowed the adoption and use of PayPal retailers and Discover as advantages, but now it must and other mobile payment options. convince consumers to pay in stores through their PayPal accounts rather than through other methods that may offer  PayPal faces stiff competition in securing a piece of the mobile rewards. PayPal will face considerable competition from payment market, including from banks, credit card companies, credit card companies, telecom companies, Intuit, Square, Apple Inc. (AAPL), Google Inc.‟s (GOOG) Google Wallet, Isis, Apple and the Merchant Consumer Exchange, or MCX. Square Inc., SCVNGR Inc.‟s LevelUp, Ingenico S.A.‟s (EPA:ING) Mobile payment adoption is expected to grow in two to five RoamPay and the upcoming Merchant Consumer Exchange. years.

 Merchant sources are embracing mobile point-of-sale (POS) 3) INDUSTRY SPECIALISTS technology in order to make shopping and purchases easier, All four sources view PayPal‟s retailer and Discover more interesting and more efficient. Two of four retailer sources partnerships as an advantage. PayPal also benefits from have provided tablets for employees to perform mobile in-store strong brand recognition and consumer trust. Roadblocks to checkouts and to improve inventory and store layout. in-store PayPal use include the crowded alternative payment marketplace, the lack of NFC capability, and consumers‟  In response to a secondary source, Anuj Nayar, PayPal‟s senior slow adoption of the technology. Adoption is expected to director of communications, said the company had yet to become widespread during the next three to five years. The heavily promote in-store payments to its account holders. He list of competitors is long and includes Apple, Google Wallet, added that PayPal spent last year building the merchant side of Isis, LevelUp, MCX, Square, credit card companies and its business and running pilots. banks.

Retailers’ Consumers’ 4) CONSUMERS WITH PAYPAL ACCOUNTS Adoption 2– Use of Mobile Use of Mobile Only two of these five sources have used their PayPal 5 Years Out Payments Payments accounts to make in-store payments, and one has stopped PayPal usage in stores because she prefers the incentives offered by her credit card companies. Mobile payments are Merchants expected to become widespread in two to five years. Consumers want and value simplicity, value-add rewards like Competitors airline miles, and security. Competition for mobile payments is expected from Square, RoamPay, Google Wallet, credit cards and banks. Industry Specialists

5) ONLINE CONSUMER SURVEY USING SURVEYMONKEY Consumers with Blueshift conducted an online survey of 287 PayPal account PayPal Accounts holders. Only one third of the account holders knew that PayPal is an accepted form of payment in stores and only 15 of those account holders have made an in-store payment with PayPal.

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eBay Inc.’s PayPal

Background Blueshift has been covering eBay‟s PayPal for more than three years. Our July 3, 2012, report found that a VeriFone Systems Inc. (PAY) partnership was helping PayPal to establish itself as a payment option in brick-and-mortar stores. Also, our March 1 Whisper revealed that PayPal had continued to push through its mobile and offline payment initiatives and had secured more partnerships, totaling 23 national retailers and including Discover. However, sources were uncertain whether consumers‟ in- store use of mobile payments, including PayPal‟s solution, would gain traction.

CURRENT RESEARCH In this next study, Blueshift assessed whether PayPal‟s deals with 23 national retailers and Discover will hasten consumers‟ use of their PayPal accounts in stores and lead to continued transaction and revenue growth for PayPal. We employed our pattern mining approach to establish sources in six independent silos: 1) Merchants (3) 2) PayPal competitors (7) 3) Industry specialists (4) 4) Consumers with PayPal accounts (5) 5) Online survey (287 PayPal account holders) 6) Secondary sources (6)

We interviewed 19 primary sources, including seven repeat sources, and identified six of the most relevant secondary sources focused on the alternative and mobile payment industries.

Next Steps Blueshift will monitor PayPal‟s efforts to push its offline and mobile payment options into more stores and to promote retailer acceptance and consumer use. We also will research adoption and use of PayPal in stores outside of the United States.

Silos 1) MERCHANTS These three merchants representing more than 4,390 stores either already accept or are in the process of integrating PayPal as an in-store payment option. Consumers‟ use of PayPal or other mobile payment options is limited. One source with 190 stores said 10% or less of payments are made via PayPal. However, all three sources expect PayPal transactions to increase during the next two years as in-store mobile payments become more mainstream. Merchants are being proactive in streamlining the shopping experience and payment transaction. One source said associates use Windows tablets in mobile checkouts. PayPal‟s strengths include its “cool factor,” security, ease of use, popularity, Discover partnership, and overall merchant and consumer trust. PayPal needs to address the lack of consumer awareness, the need for an NFC solution, and its customer service. Competition is expected from Google Wallet and Apple.

 Senior vice president for an omnichannel ecommerce retailer Allowing payment through PayPal, Google Wallet and other alternative methods attracts a “young, tech-savvy customer.” This retailer offers PayPal and Google Wallet, and is in the early stages of implementing Apple‟s Passbook. PayPal‟s Discover partnership will overcome the roadblock of needing updated POS equipment. The source said many companies hope to be the first to simplify the buying experience but added that consumer awareness remains low. . “We haven‟t gone public with specific usage numbers. PayPal at POS is small but growing. We are also using Google Wallet and have deployed that through a significant portion of our stores.” . “This is a typical story as new channels and payment methods come on the marketplace. They offer competitive rates as they‟ve tried to build adoption, and we‟ve seen that as well from PayPal.”

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. “We‟ve generally had a strategy of trying to be forward-looking on these kinds of methods, trying to be where are customers are. We cater to a We haven‟t gone public with younger, tech-savvy customer, and however they want to transact with us is important to us. We‟ve been aggressive in offers from a software specific usage numbers. PayPal and service side, as well as with VeriFone readers and NFC capability, at POS is small but growing. We so we‟re on the leading edge. As PayPal becomes more common, we are also using Google Wallet believe it will become more widespread with awareness and and have deployed that adoptions.” . “There are definitely PayPal fanatics who really love it, and PayPal will through a significant portion of tout the value that there are all your receipts in one place and there our stores. … But the biggest are ways merchants can promote offers through their channels. If barrier to adoption is just you‟re a user, it‟s a very straightforward means to pay.” awareness. . “Part of the challenge is, if we weren‟t using the more state-of-the-art equipment, it would have been more challenging to leverage [PayPal] Senior VP capability. We‟re using the better POS equipment. That‟s again where Omnichannel Ecommerce Retailer it‟s important for them to get the Discover infrastructure in place, which eliminates some of those technical barriers.” . “Obviously, the infrastructure requirements that used to exist prior to the Discover announcement is one. But the biggest barrier to adoption is just awareness. Even in our case, we haven‟t put an enormous amount of energy into promoting PayPal or any other specific payment method; it‟s just one of the options offered. Consumers who have PayPal don‟t even realize they can pay with it. But again, with our customer being If we weren‟t using the more more „tech current,‟ we‟re seeing adoption rates ahead of the industry.” state-of-the-art equipment, it . “The consumer demand is clearly there to have easier ways to pay. And would have been more the intersection of online and in-store is becoming pretty obvious to challenging to leverage [PayPal] consumers, who are asking, „Why am I seeing different inventory online capability. We‟re using the and in the store?‟ … The need is obvious to come up with a way to better POS equipment. That‟s simplify all of that. … As you build this seamless experience, the notion of the traditional POS machine sitting on a desk and using up floor again where it‟s important for space is going away.” them to get the Discover . “To consumers [PayPal is] a method of payment, so are they competing infrastructure in place, which directly with the credit card? Or with other more emerging players like eliminates some of those Google Wallet? It‟s hard to say.” . “A large number of players are trying to figure out how to aggregate technical barriers. payments, be it through payment wallets, receipt wallets, shopping cart Senior VP automation. What‟s clear is, it‟s a real pain to check out with a mobile Omnichannel Ecommerce Retailer device; the consumer has to key in all those credit cards. There‟s a lot of different technologies vying to simplify that.” . “I think there‟ll be two or three players when it all shakes out. I couldn‟t hazard a guess as to who they‟ll be.” . “We‟re already using Google Wallet. [With Apple‟s] Passbook, we‟re on the earlier stage of our mobile lifecycle, but Apple has approached many retailers, us included. It‟s certainly an opportunity worth exploring.”

 Chief implementation officer for a PayPal partner merchant PayPal needs to address having NFC capability in order to stay competitive. A number of mobile payment systems are available, and merchants will adopt secure systems that address new technologies and meet customers‟ needs. This merchant‟s goals are to improve customer experience and employee efficiency. . “PayPal seems to be positioning themselves well, but so are the competitors. I don‟t think this is a market for just one type of payment. I think merchants will be using various systems. Customers will be looking for something that is easy, quick and secure, and encompasses many of the stores they frequent.” . “We have some customers who use PayPal—less than 10%, but I think that will increase. Our customers trust PayPal.” . “There are many competitors, and there is room for many competitors. Square is easy. The credit card companies are coming out with their own mobile payments too.”

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. “All of our stores across the board now have PayPal. We‟re still working on our mobile strength. We just got new software, and in 90 days we PayPal seems to be positioning will be stronger. There is a learning curve to any new system.” themselves well, but so are the “Several years ago, we adopted tablets for all the sales floors and . competitors. I don‟t think this is started using Windows 8. We completed the table application in three months. Our sales team feels invested. We want the sales force to have a market for just one type of innovative services and stay with the customers throughout the buying payment. I think merchants will process. We don‟t want them to leave and stand by a cash register.” be using various systems. . “We hear that near-field technology will be the future, and I‟m not sure Customers will be looking for that PayPal is connected to near-field yet. We plan on adding whatever something that is easy, quick system our customers want.” . “We want to capitalize on the „cool‟ factor. Our internal system is always and secure, and encompasses changing. We are always looking at new technology and evaluating many of the stores they them.” frequent. . “Security is always a concern.” . “We do not pass our fees along to our customers. They know that, and Chief Implementation Officer they trust us.” PayPal Partner Merchant

 Mobile marketing specialist for a PayPal partner merchant Mobile in-store payments will become the industry standard but not for at least a few years. PayPal will be the market leader because it has positioned itself well across all channels, but it will be pressured by Google Wallet in a few years. Also, PayPal‟s customer service could be improved, and the company needs to have NFC capability. . “Mobile payments will be more popular in the next two years. It will be a tough climb this year, but in a few years it will become an industry standard.” . “PayPal will be the leader. They are in a good position across all channels. In the future, Google Wallet will give them some PayPal will be the leader. They competition.” are in a good position across all . “PayPal is a popular name, and lots of companies use them. Across the board, they have done a phenomenal job just about everywhere. channels. In the future, Google PayPal makes it very easy to pay.” Wallet will give them some . “PayPal is a trusted company for both merchants and customers. competition. When you see their logo, you have a sense of security. A lot of people have PayPal accounts online, and this may transfer to the store front.” Mobile Marketing Specialist PayPal Partner Merchant . “We use PayPal for our online store, and just a few … stores started using PayPal in-store in the fall. We expect this to grow nationally.” . “We are always looking at the customers and how they want to pay. You need to have an iPhone or other smartphone to use NFC. If more customers express interest in NFC payments, we will go that way; so will PayPal. Conversely, if PayPal develops NFC first, will customers follow? Hard to tell.” . “PayPal charges are high when transferring money, but I‟m not sure about store-front charges. Credit cards generally charge stores 3%.”

2) PAYPAL COMPETITORS Six of these seven sources cited PayPal‟s partnerships with retailers and Discover as advantages, but now it must convince consumers to pay in stores through their PayPal accounts rather than through other methods that may offer rewards. Two of those six sources said PayPal is a leader in alternative payments, both online and in stores. The other four said the mobile payment industry is young and has no clear leader. Also, PayPal does not offer enough value to either the merchant or the consumer. PayPal will face considerable competition from credit card companies, telecom companies, Intuit Inc. (INTU), Square, Apple and the Merchant Consumer Exchange, or MCX. Mobile payment adoption is expected to grow in two to five years. Our final source is a Square representative who refused to talk about PayPal but was included for information on Square‟s pipeline.

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 Credit and mobile services support professional Many smaller merchants reportedly switch from PayPal to this competitor and others like it, which might have slightly higher transaction fees but lower overall costs. PayPal continues to dominate the mobile transaction field, and it offers conveniences like emailed receipts. However, mobile credit-card processing appears to be most on the rise. . “I do see PayPal as dominant in the field of mobile payment. They‟re made available everywhere.” . “Discover‟s another resource available to them—another large resource.” . “But we have a lot of merchants who are currently using PayPal who switch over. The rates aren‟t as great as the standard transaction that mobile payment processing offers. PayPal offers a really secure solution, which is why a lot of people use it. But as far as merchants, if they can save money they‟ll come to us.” . “[PayPal offers] convenience. PayPal offers the emailed receipt. It‟s not I do see PayPal as dominant in going to be a higher credit card rate. It‟s handled like any other transaction. It works the same way if the card is swiped at a register, the field of mobile payment. and the merchant pays the same rate as for a keyed transaction.” They‟re made available . “PayPal‟s rate per transaction is 2.7% per swipe. We‟re offering a flat everywhere. rate of 2.75% with no monthly fee, no annual fee or PCI fee, no contracts. That‟s why we get a lot of people coming from PayPal.” Credit & Mobile Services Support Professional . “Square [is] managing to arrange some pretty big deals with larger retailers on the mobile processing side.” . “[The percentage of mobile POS transactions is] increasing, drastically. I‟d say over the next couple of years the majority of organizations, especially smaller companies, will do mobile processing.” . “Starbucks [Corp./SBUX] is using Square at all their locations, but at the same time there are the mobile wallets and other electronic processing ways of accepting payments competing as well. But mobile processing is the one that‟s on the rise right now; that‟s one of the services we provide.” . “It will become more common in the next year and quite common in two years.” . “The majority of our clients are smaller merchants. The larger retailers are still going to lean toward a traditional setup or a virtual terminal setup.” . “[Credit card fees have] fluctuated. If you know about the lawsuit with major retailers against Visa [Inc./V] and MasterCard [Inc./MA], the interchange is supposedly not as high as it‟s always been. I don‟t see that changing because one option available to merchants is to add a surcharge to a transaction.”

 Co-founder and COO of a PayPal competitor on the West Coast; repeat source Despite its offline and mobile efforts, PayPal is not emerging as a dominant player. The market is too immature, and innovative startups are forming meaningful partnerships as well. PayPal faces many challenges, including overcoming its reputation and convincing consumers that they need PayPal. Its main competitor is Square; Google Wallet has essentially failed. Mobile payment adoption is growing rapidly, but the technology will not be mainstream for at least two years. An estimated 20% of mobile payments are done at POS. . “While PayPal has strong brand awareness and partnerships, the market is far from mature, and innovative startups like Square have proven that they can also form meaningful nationwide partnerships While PayPal has strong brand that bring with it a devoted payer network.” awareness and partnerships, . “PayPal has many challenges to becoming the market leader in mobile payments. They need to form partnerships with retailers, with small the market is far from mature, businesses, and they face stiff competition from other innovative and innovative startups like companies like Intuit, Square, etc. They also need to convince their Square have proven that they customer base that a mobile wallet is right for them, which is no easy can also form meaningful challenge given PayPal‟s poor brand reputation among consumers and nationwide partnerships that merchants.” . “Discover will give [PayPal] strong access to merchants, but they will bring with it a devoted payer also need to create awareness with consumers and convince them to network. use PayPal to pay for goods. We saw Google‟s mobile efforts with Google Wallet fail despite strong partnerships because they were Co-founder & COO PayPal Competitor, West Coast unable to convince consumers of the value of paying with Google.” . “PayPal offers consumers the ability to pay with … a well-established

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brand. Consumers can use their PayPal balance, linked credit cards, or bank accounts to pay for a purchase. Consumers have up to seven days to choose which payment source they want to use to fund a purchase.” . “PayPal‟s main competitor is Square for merchant and consumer adoption. Square is also winning mainstream partnerships and has a strong following among small business retailers.” . “[It will take more than] 24 months [for mobile payments to become mainstream]. While there have been many exciting developments for mobile POS solutions, including at Starbucks and Home Depot [Inc./HD], mainstream retailers have not yet shown a willingness to implement such solutions. Consumers have not yet shown a willingness to adopt mobile wallets. The adoption rate is rapidly growing but still has much room to grow.”

 Marketing manager for a competitor on the East Coast PayPal is becoming more accessible to merchants and consumers, but it needs to educate the public about its in-store system. Merchants and consumers alike will be using multiple services for the next few years. Merchants dislike paying high credit card fees, and MCX is an interesting challenge to the current system. Mobile payments will not be universal for at least four or five years. . “Any partnership that PayPal makes, including Discover, will help them and make their product more accessible for retailers and customers alike. That holds true for all of us.” I don‟t think too many . “PayPal has a well-known name, and it is easy to use online. The store customers know about PayPal‟s service should be the same.” in-store services despite last . “I don‟t think too many customers know about PayPal‟s in-store year‟s spread on the services at services despite last year‟s spread on the services at Home Depot. Home Depot. PayPal really PayPal really needs to work on this.” . “There are many competitors for the mobile payment market, and I needs to work on this. think customers will use several of them on their mobile phone Marketing Manager systems, at least for a few years. Eventually, the dozens may be Competitor, East Coast reduced to a number of popular apps. An interesting concept is MCX, which comprises a number of retailers.” . “Stores would like to get away from credit card transaction costs. Credit cards offer merchants and customers a convenient service, but they are expensive. Not too many stores pass these costs onto the customer. It‟s too important to keep the customer happy, especially in this economy.” . “This market will take awhile to grow. I don‟t think it will be universal before 2018.”

 VP of marketing for a debit/credit card processor with a mobile solution based in Canada PayPal has a strong and aggressive offering but still is comparatively small in the mobile payments market. Although mobile payment use is strong in Canada, consumers take the easiest route to pay, which favors the NFC solution. PayPal‟s stiffest competition for mobile payments remains the credit card companies and the telecom companies. . “Will [PayPal] ultimately usurp what Visa, MasterCard or American Express [Co./AXP] come up with? I think it‟s an uphill climb. They can compete, but I also think that the power and distribution of Visa and MasterCard are significant. They‟re certainly not going to cede that marketplace.” . “The Discover move by PayPal was to gain access to physical points of sale, which they‟ve accomplished to a degree in the U.S. once they get The Discover move by PayPal their cards issued. But they‟re not there yet or in other parts of the was to gain access to physical world. They don‟t have a physical card infrastructure in place.” . “PayPal‟s strength and weakness could be one and the same. They can points of sale, which they‟ve afford to be leading-edge and focus on the consumer interaction, and accomplished to a degree in not do what the traditional participants in the market have done. But in the U.S. once they get their the end they‟re not ubiquitous. They‟re small and flexible.” cards issued. But they‟re not “There‟s a suite of [competitors in the mobile space]. Ignore for a . there yet or in other parts of moment the Visas and MasterCards; it‟s pretty clear the telcos are wondering what their future is. Everybody wants to own the customer, the world. They don‟t have a including the banks and the telcos.” physical card infrastructure in . “[The percentage of mobile payments is] still pretty small. The order is place. physical world transactions, then ecommerce, then mobile. The Canadian payments landscape has already gone to chip-and-PIN VP of Marketing Debit/credit Card Processor, Canada

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solutions, EMV-based cards [Europay, MasterCard and Visa]. Canada is farther ahead as well in the tap-and-go solutions, with a chip inside a card that can be processed—a [MasterCard] PayPass or Visa equivalent. With the chip-in-the-phone solution, the phone becomes the card; it‟s not quite a wallet, but you‟re leaving the wallet at home. That‟s the precursor to the consumer‟s view of what the mobile use of transactions are.” . “From the retailer perspective, it becomes almost as fast as cash, with no PINs, swiping or signatures. We‟re starting to get some folks like McDonald‟s [Corp./MCD] enabled with this capability, which makes their throughput quicker. It changes trends too: Canada‟s got a robust debit network that is separate from Visa‟s or MasterCard‟s network.” . “The other side is the full concept of a mobile POS solution, which is a little beyond having a reader attached to a cell phone with an app to accept payments, but rather to run a full POS solution.” . “The [format] of waving a card at the cash register is growing quite quickly in Canada, particularly in fast food. They‟re designed for transactions under $50, so they‟re also popular in oil and gas. The first time people use it and don‟t have to enter a PIN, which they did with an EMV-style transaction, it [catches on].” . “The movement from there to something inside the phone you wave isn‟t a big leap, but how big a leap is it from a physical phone to a mobile wallet-style solution? Those are all being supported by, for example, MasterCard. Are they going to win, or will someone else emerge? We‟re just enabling the transactions that matter to merchants.” . “If you‟re extending credit … you‟ll have costs associated with it. There‟s a gamut of people who wish to compete, and they can‟t all win. Beyond Visa, MasterCard and American Express, there are other card brands like Discover. … It‟s a complicated landscape.”

 Head of product, mobile payments and POS for a small business financial solutions company PayPal is weak on value-adds to merchants and consumers alike. It does not provide the lowest cost or most advanced reporting/tax capabilities, and cannot compete with credit card rewards. Stronger, more complete solutions exist for smaller businesses and microbusinesses. . “I see PayPal in the same line with MasterCard, Visa and American Express—a means to make a payment or to get paid. They would be a competitor with one of our offerings, but at the same time it comes down to providing value. For the consumer, if you were to pick your payment means, nine times out of 10 that‟s based on what reward you get out of it. If you went to the VeriFones or Equinoxes [Equinox Payments LLC] of the world, you‟ll whip out your Amex for higher cash back than you get out of PayPal.” . “[Retailer agreements] help. PayPal does a great job of working with enterprises and with really powerful websites. … But we‟re focused on small businesses, without the IT departments and capabilities from a reporting perspective that a lot of these larger businesses and enterprises have.” . “For the most part, PayPal has been competing on the [premise] that it was easy to sign up, the easiest way for folks to get paid. We‟ve neutralized that. … The second way they competed was on price. … It‟s now a race to the bottom. And the third [roadblock] is workflow software and capabilities, where PayPal is challenged to get into the small business space.” . “[The percentage of mobile transactions at POS] has been hard to get a hold of … but mobile is the fastest growing category for us. If you look at the market today, the majority of players get in and play on price. It‟s 1.7%, 2.7%, 2.75%.” . “The Tech Crunches of the world will talk about the latest and greatest; however, we try to simplify our offerings and make them appealing to the golf instructors of the world. The last thing the golf instructor wants to do is figure out how to get a report out of his offerings or how much tax he owes.” . “As soon as Apple does something, there will be a huge trajectory in [mobile payments] because they have the scale to standardize.”

 Co-founder of a white-label mobile wallet and payment solution serving banks, retailers and processors; repeat source PayPal is in a good position with its retailer and Discover agreements. Its most difficult challenge will be to convince consumers to use their PayPal accounts in place of reward- and point-earning credit cards. PayPal wants to have its logo decal on the door of major retailers, and has subsidized many of the retail implementations now available to consumers. MCX has little chance of success because merchants are trying to create another payment method that consumers are unlikely to adopt. Widespread adoption of mobile payments is expected in the next three to five years.

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. “PayPal has run the table and, at least in the U.S., saturated the payments market in the ecommerce world. They are the leader. … They had to turn to in-store payments to significantly increase transactions.” . “PayPal‟s agreement with Discover and retailers has them in a good position, but their challenge will be to convince consumers to pay in PayPal‟s agreement with stores with PayPal versus a traditional credit card from which they get Discover and retailers has rewards and points.” them in a good position, but . “PayPal is determined to make this work. … They openly say they want their challenge will be to to become the next sticker on the merchant‟s door; they want to be an convince consumers to pay in American Express or Visa.” . “A lot of these agreements with retailers are taking place because stores with PayPal versus a PayPal is paying for them. They are underwriting the implementation traditional credit card from costs.” which they get rewards and . “I see the use of a service like PayPal as a benefit to the consumer points. because it is more secure, you don‟t have your data going all over the place. The merchant in some cases can benefit from lower fees as Co-founder, White-label Mobile Wallet 60% of their current transactions go through ACH. That can shave a & Payment Solution few basis points off your transaction charges.” . “MCX is trying to do the same thing as PayPal, create a new payment method that will be some kind of a debit or ACH transaction. The merchants want to lower costs, but … consumers will have to get a MCX card and adopt another payment method. I think it has about a 0% chance to succeed.” . “There is room for six to maybe eight major providers and then maybe some proprietary solutions. But in the end I see it as good for the consumer, providing lots of choices about how to pay and how to manage your money.”

 High-ranking Square executive Square is competing aggressively to capture merchants in that it offers an inexpensive POS system; can scale from a single location to, for example, Starbucks; vastly simplifies payment for customers and merchants; and offers rich analytics to those merchants. Square claims to have grown from 200 retail locations in 2011 to more than 40,000. Its Square Wallet option is designed to simplify payments, with the value-adds of merchant location, loyalty programs and gift cards. The company has just released Business in a Box, a low-cost option (starting at $299) that it bills as “all the hardware you need to run Square Register on your counter.” While Starbucks is the feather in its cap, Square is capturing multilocation merchants (chiefly low-cost, high-volume retailers like Starbucks). . “There is … an assumption among business owners that setting up and using a POS system has to be expensive and complicated. We want businesses to know that‟s not the case. Merchants should expect transparent rates and simplicity, and that‟s what Square offers.” . “Square works for businesses of all sizes. … We‟ve seen a noticeable increase in brick-and-mortar merchants running and growing their business with Square. In fact, revenue from Square businesses with multiple accounts is seven times what it was six months ago.” . “We‟re processing more than $10 billion in payments a year annualized, and in 2012 we grew our customer base from 1 million to more than 3 million. Our transaction volume makes [us] the equivalent of the 20th largest retailer in the United States.” . “Square is accepted in more than 7,000 Starbucks, [and] Square readers [are] now available in more than 40,000 retail locations nationwide—up from only approximately 200 locations the summer of 2011. We also recently announced that our Square readers are also sold at Starbucks.” . “For decades, credit-card processing fees were complicated, and businesses had no way to determine how much they would owe at the end of the month. Square revolutionized the payment industry by offering merchants low, simple and transparent pricing for the very first time.” . “For companies that already accept credit cards, there are also major economic advantages. For one, the hardware and software are free. Another is our low, simple, and transparent pricing: 2.75% per swipe or $275 per month. This monthly pricing can bring down fees to as low as 1.3% per swipe.” . “Square‟s free analytics give our customers greater insight into their numbers so they can make better business decisions.”

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. “With Square Wallet, customers can discover local businesses, pay with their name, participate in loyalty programs and even send gift cards. This allows businesses to develop better relationships with their clients because people spend less time focused on paying and more time getting to know neighborhood businesses.”

3) INDUSTRY SPECIALISTS All four sources view PayPal‟s retailer and Discover partnerships as an advantage. PayPal also benefits from strong brand recognition and consumer trust. Roadblocks to in-store PayPal use include the crowded alternative payment marketplace, the lack of NFC capability, and consumers‟ slow adoption of the technology. Adoption is expected to become widespread during the next three to five years. The list of competitors is long and includes Apple, Google Wallet, Isis, LevelUp, MCX, Square, credit card companies and banks. Starbucks is considered the most successful in-store payment app in use today.

 Editor-in-chief for an electronic payment publication PayPal has a considerable advantage over other mobile payment methods in terms of consumer brand recognition. Still, mobile payment at POS is minimal. PayPal‟s main competitors are PayPal has partnered with an impressive breadth of retail partners, but major retailers may delay implementation in anticipation of the MCX system. Apple Google Wallet, Isis, even may become an industry player as well. Starbucks is the most significant Square and LevelUp, and success story thus far. people are waiting to see what . “As far as implementation goes, we‟re in the very nascent stage of Apple does as well. A lot of mobile payments.” companies are hoping to get . “At the POS, you‟ll see very few mobile payments. … Even ecommerce, regular ecommerce, is only around 10% of total transactions, and the hold in this space, and that‟s mobile slice of that is very small.” not even taking into account . “Isis just went into pilot, and they‟re as high-profile as it gets. Visa, MasterCard and issuing . “Until all these pilots get ramped up and scaled nationally, there won‟t banks. be a whole lot of mobile activity going on. Basically, the biggest deployment now is Starbucks.” Editor-in-chief . “PayPal started out with Home Depot, and they‟re running the gamut of Electronic Payment Publication general-audience brick-and-mortar retailers.” . “I can only tell you what merchants tell us, and I‟ve never met one yet who thinks they‟re not paying too much for credit card acceptance—regardless of any legislation, including [the Durbin Amendment] and the settlement with Visa and MasterCard over interchange [fees].” . “For the most part, all mobile payment systems are still paid with a credit card. Someone‟s paying interchange, which as usual gets passed onto the consumers.” . “There are people looking now at other funding mechanisms, like bringing ACH system into payments systems. But cards are so ingrained and the infrastructure is built into retailing, it will be hard to do that. On some level you‟ll deal with Visa, MasterCard and Discover forever.” . “PayPal‟s main competitors are Google Wallet, Isis, even Square and LevelUp, and people are waiting to see what Apple does as well. A lot of companies are hoping to get hold in this space, and that‟s not even taking into account Visa, MasterCard and issuing banks.” . “You have a lot of retailers starting their own [payment system]. They‟ve launched MCX, which was announced last year; they don‟t have anything in pilot yet. Merchants are a huge part of this, and it takes them implementing all of this to get it going. MCX may be why you don‟t see Wal-Mart [Stores Inc./WMT] and others partnering with Square or Google.”

 Managing editor for mobile commerce content for an e-commerce trade magazine; repeat source PayPal‟s mobile payment volume increased nearly 29% in 2012, to $14 billion, and is expected to reach $20 billion in 2013. PayPal‟s biggest strength is name recognition. Its biggest weakness is its slow adoption of NFC technology. . “Reports indicate that PayPal is doing a lot of mobile payment volume. PayPal processed $14 billion in mobile payment volume in 2012, more than three times the mobile payment volume of $4 billion in 2011. [PayPal] expects to process more than $20 billion in mobile payments in 2013.” . “PayPal‟s biggest strength is the cache its brand holds. People know and trust PayPal.”

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. “A stumbling block [of PayPal] certainly is the very slow adoption of NFC [wireless] technology. You‟ll find a lot of stories about NFC. When PayPal can align with NFC at the POS, then it will hold greater value.”

 Vice president of communications for a digital marketing analysis firm in New York PayPal‟s current positioning has not put it at a disadvantage, but Google Wallet and Isis also are backed by numerous companies. PayPal is limited by its lack of NFC technology, which will be the ultimate winner by 2015. The profusion of competitors only confuses retailers and consumers and ultimately slows adoption. . “PayPal has certainly done some positioning, but it is difficult to say if this is a good position. It would appear so, and they certainly are not at a disadvantage. But there are other companies with more stakes in devices.” . “The cheaper options, Square and PayPal, have limitations without NFC technology.” “It is hard to pinpoint a winner or pick the top competitors, and it is not . PayPal has certainly done some clear which [companies] will exist in four years. But the market hasn‟t taken off yet. … There are dozens of players, an abundance of options.” positioning, but it is difficult to . “The clear winner will be NFC technology by the years 2015, 2016. It say if this is a good position. It will be expensive compared to cheaper options, but the expensive part would appear so, and they is the rollout. On the other hand, mobile phones already have NFC in certainly are not at a them.” disadvantage. But there are . “You can‟t just use one service and love it; consumers will need to use a collection of services. There are benefits to using each platform and other companies with more to integrate consumer profiles within the marketplace.” stakes in devices. . “It‟s not as easy to compare the [competitors] although Square would VP of Communications compare most directly to PayPal, where bar codes are to be scanned. Digital Marketing Analysis Firm, NY More broadly, Google Wallet and Isis are contenders. Also cards with a smart charge, like the EMV standard in Europe.” . “Credit card transactions carry a high cost. The financial industry is working closely with many players to spur mobile payments along. The V.me of Visa credit cards is likely to gain from the most solutions, regardless of what happens. MCX has the potential. … They know about consumer habits. Pooling the knowledge makes sense, and retailers can save on transaction fees. But details of this competitor are still sketchy.” . “Mobile payments will increase in six to 12 months. Right now sales are about $1 billion, and by 2016 they are projected to be $62 billion.” . “Habitual consumption is critical to move mobility payments to the mainstream. The experience of using mobile payments must be convenient for consumers to encourage their repeated use. The current concerns about security and battery life will also need to be addressed.” . “I‟m not familiar with the PayPal/Discover agreement.”

 President of a payments industry consulting company; repeat source In two or three years, you will Usage of mobile payments at POS will increase during the next few years, but widespread adoption will not occur until the 2020s. Money trends move slowly, see a lot of people making and consumers do not yet see a clear advantage in using mobile payments payments using their phone. rather than credit cards. The ultimate market leader will ride out this uncertainty And in a few more years after and retain customer loyalty. PayPal is the current leader, followed by Square, that, you will see even more Starbucks and Amazon.com Inc. (AMZN). people do so. But it won‟t be . “In two or three years, you will see a lot of people making payments using their phone. And in a few more years after that, you will see even until the 2020s before mobile more people do so. But it won‟t be until the 2020s before mobile payments are widespread and payments are widespread and reliably used. Everything in payments reliably used. Everything in goes slow. PayPal started in 1998. They are still in the low single digits payments goes slow. PayPal in market share.” started in 1998. They are still . “The vast majority of electronic payments made on mobile phones are made outside stores, such as on iTunes, Amazon, online ticketing. Only in the low single digits in a tiny minority of mobile transactions are made in stores, and PayPal market share. has an even smaller percentage of POS.” President Payments Industry Consulting Company

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. “The biggest roadblock to this market is consumer adoption. Right now it is a slow period of adjustment and a risk for anyone in this business. Competitors will need to adjust to this period of uncertainty.” . “PayPal is the dominant player; they already are a leader. Since the earliest days of mobile, PayPal has made all sorts of moves to help them get there. But it is way too early to say who will be the overall market leader.” . “PayPal‟s strength is its experience in ecommerce. Its weakness is lack of experience in POS.” . “The agreement with Discover was a great move, and PayPal can use it to their advantage. It is their one method to get ubiquity of consumer acceptance. If all you need to do is swipe a PayPal card and chose method of payment, this will be easy. Discover is accepted at 97% of all merchants.” . “There is not a real clear advantage at POS for PayPal; it is still easier to swipe a credit card. PayPal will be going for a lifestyle play. It will allow people to choose how they want to fund their purchase, either credit, installments or debit card. PayPal will go after this consumer preference niche, but this type of system will not have something viable for all.” . “PayPal‟s biggest competitors are Square and Starbucks … and to a lesser degree Amazon.” . “I haven‟t seen increased credit card fees recently although over a longer period of time fees charged to merchants have increased. Low transaction fees encourage retailers, but there is little to effect consumer change. It is very hard to get consumers to adopt a new payment type that has lower merchant costs because there‟s rarely a perceived benefit to the consumer.”

4) CONSUMERS WITH PAYPAL ACCOUNTS Only two of these five sources have used their PayPal accounts to make in-store payments, and one has stopped PayPal usage in stores because she prefers the incentives offered by her credit card companies. Two sources want to use PayPal in stores once doing so becomes more mainstream. The remaining source has no plans to use PayPal in stores because she observed a botched PayPal transaction at a Home Depot store. Mobile payments are expected to become widespread in two to five years. Consumers want and value simplicity, value-add rewards like airline miles, and security. Competition for mobile payments is expected from Square, RoamPay, Google Wallet, credit cards and banks.

 Massachusetts man in his 60s who uses mobile payments for personal use; repeat source Mobile in-store payments will become universal in two years. This source was not aware of PayPal‟s mobile payment system. He trusts PayPal and uses it for online purchases, especially at new websites, but he will continue to use credit cards in stores to earn airline mileage points. . “[Mobile payments will become universal] in 48 months. I like the idea I haven‟t made a payment at a of not having to get cash all the time.” retailers yet because not many . “I haven‟t made a payment at a retailers yet because not many [stores] [stores] have the devices to have the devices to allow mobile payments. There is a lack of critical allow mobile payments. There mass of retailers. I didn‟t know that PayPal was available at large retailers, and I haven‟t noticed anyone using PayPal in the stores. I is a lack of critical mass of would prefer to use my mileage card at a retailer.” retailers. I didn‟t know that . “I use PayPal, Amazon, Regal [a cinema app], and Apple iTunes PayPal was available at large shopping apps. I use PayPal because I link it to a savings account, retailers, and I haven‟t noticed limiting my exposure. I use PayPal primarily for sites I have not bought anyone using PayPal in the from before. … I trust the other sites, so I store credit card [information with them].” stores. I would prefer to use my . “I use the PayPal app on my iPhone 4 [when buying something online], mileage card at a retailer. but it doesn‟t allow me to make mobile payments [at a store].” . “I‟ve only heard of Google Wallet [as a competitor]. I thought Intuit only PayPal Customer, MA did things like Mint, which we use.”

 Florida woman in her 60s who uses mobile payments for personal use; repeat source Mainstream mobile payments are at least five years away. This source observed a bungled PayPal checkout at a Home Depot last year and doubts she will ever use PayPal in stores. Starbucks, Square and Google Wallet are PayPal‟s

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competitors. Her ideal mobile payment system would be easy to use, encompass the stores she frequents, and give airline mileage or store PayPal? I saw a transaction discounts. . “It will take awhile for everyone to be using phones to buy things in once last year. Someone in stores … at least five years, maybe more. Right now everything is too front of me in line at Home confusing to even know what is the best system to use.” Depot tried to use a PayPal . “PayPal? I saw a transaction once last year. Someone in front of me in card. What a mess. They had to line at Home Depot tried to use a PayPal card. What a mess. They had find their card, then punch in a to find their card, then punch in a phone number. Then they had to put in another number. It took forever. A credit card would have been so phone number. Then they had much faster, and that turned me off right away. I doubt if I‟ll ever use a to put in another number. It PayPal card.” took forever. A credit card . “I‟ve heard of Google Wallet, but I don‟t know anything about it. I‟ve would have been so much used Square once at Starbucks, and I use the Starbucks app.” faster, and that turned me off . “I suppose I would use a mobile payment system if I could use the same system in the stores that I go to the most. I would want one app right away. I doubt if I‟ll ever for my favorite stores. It would work the same in all the stores—allow use a PayPal card. me to charge on my credit card or give me airline mileage, like my credit card. It has to be simple, or I won‟t bother with it.” PayPal Customer, FL . “Starbucks is easy, and I‟ve been using it for a few years. I have automatic refill on my app. … Recently I saw that Starbucks had the Square payment, and I tried it once with my credit card, just to see how it worked. It was easy, too. But I always have my phone with me; I don‟t always have a credit card with me.” . “Starbucks is catering to different customers, the ones who use smartphones all the time and the ones who have credit cards. … I imagine other stores will have to do the same. They will have to have different types of payment services for different types of customers.”

 Music teacher who accepts PayPal for private lesson payments and formerly used PayPal at Home Depot; repeat source This source accepts payments via PayPal, but has ceased to use it as a form of I used to use [PayPal] more, payment. She has come to rely upon credit/debit cards when making payments. but I like having the credit card . “I do use the Starbucks card. It‟s a few bucks here and there; I‟m OK with that. Anything other than that, I‟m more cautious.” statements because I itemize a . “PayPal‟s fine. It‟s how maybe half of my students‟ parents pay me lot of what I spend on. PayPal now.” does that too, but I use . “I used to use [PayPal] more, but I like having the credit card [Intuit‟s] Quicken. I‟ve got my statements because I itemize a lot of what I spend on. PayPal does that Visa and Amex keyed in there, too, but I use [Intuit‟s] Quicken. I‟ve got my Visa and Amex keyed in there, and it helps me keep track.” and it helps me keep track. . “What I‟m really interested in is if my bank comes out with an app or a PayPal Customer wallet. I‟ve got one bank account already, I bothered to make it work online. Make it easy on me, and I‟ll sign up.”

 California man in his 40s who uses mobile payments for business and personal use Mobile in-store payments will be mainstream in two to four years. PayPal‟s adoption will be slow because of its negative reputation. Less than 2% of this merchant‟s transactions are via PayPal, and he pays through PayPal only when necessary. Square and RoamPay are more forward-thinking and embraced by small merchants. Credit card fees are more a problem for the merchant than the customer. . “[Mobile in-store payments will be mainstream] in 24 to 48 months. The writing is on the wall and has been for the last two years. Even the rank-and-file, large gateway dinosaurs have learned they need an option if they want to keep the business.” . “PayPal‟s [adoption is being slowed by its] history and past merchant practices. The PayPal Here dongle appears to be an obvious attempt to capitalize on Square.”

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. “PayPal‟s two good features are: 1) If you have a PayPal card, the transaction amounts are available instantly as a „loan,‟ and 2) being able to process payments for other countries. [This second feature] is a negligible advantage to most smaller U.S.-based merchants. We get the same features with Stripe/Google and at no extra costs. Also, unless the card is chip and PIN and doesn‟t have a major card brand on it, I can still process it. Chip and PIN will be the future in the next 36 months [in the] U.S. to [prevent] fraud.” . “[PayPal competitors] are Square and RoamPay—Square because of early adoption, the cool factor and its tech- forward approach; RoamPay because of cross-licensing the product, not because of their own selling practices.” . “As Square continues to dominate the field, more consumers are aware and comfortable with its brand of payment processing. Why? Many merchants and consumers have had less than stellar interactions with either PayPal or eBay. Hopefully, the new eBay promotion of listing for free from mobile devices will help to change that. Regarding Square, the unofficial/official ambassador advertising push [Inner Square program] by Square power users and the recent spate of TV ads have reached consumer ears.” . “SailPay is hampered by their parent company [VeriFone]; they have great potential that they will never realize. Groupon [Inc./GRPN] is like RoamPay, with a few minor platform tweaks, and PayPal Here is not a significant enough game changer to warrant a change for us. Stripe PayPal‟s [adoption is being and Google Wallet are customer conveniences until something better slowed by its] history and past comes along.” merchant practices. The PayPal . “We currently accept Square, Stripe, PayPal, Google Wallet, SailPay and Here dongle appears to be an good, old cash. We have accepted others in the past, but continue to return to Square as our primary processor. We have been using Square obvious attempt to capitalize for two to three years. … PayPal is our longest held processor at five- on Square. plus years.” Mobile Payment User, CA . “Very few of our transactions are via PayPal; 98% to 99% of our transactions are using competitor platforms.” . “No [customers have] asked about PayPal, except for the few PayPal employee customers we have. Most vendor friends [who] tried PayPal have since moved on.” . “We have two customers [who] prefer to pay via PayPal—one of the few reasons we have an account. As far as paying with [PayPal, we use it] strictly [for] convenience for the few sites that have a product that we want to purchase but don‟t want to expose a credit card to.” . “I use an Android. … I make convenience and online purchases. I use PayPal approximately 60% to 70% of the time.” . “I have a personal PayPal account. … I‟ve had merchant accounts before, and the cost did not outweigh the service, given the proliferation of options available. On a personal side, it‟s merely a convenience as long as it‟s cheap or free.”

 New England man in his early 50s who is a PayPal and Square user This consumer would use a PayPal app if it worked the way PayPal does online. He uses the Starbucks and Dunkin‟ Donuts (Dunkin Brands Group Inc./DNKN) payment apps. I like this pay-at-the-pump kind . “I like this pay-at-the-pump kind of thing with Dunkin‟ Donuts or of thing with Dunkin‟ Donuts or Starbucks, but I don‟t like a lot of different apps. Someone needs to Starbucks, but I don‟t like a lot come up with a universal app. PayPal would be ideal to do that, of different apps. Someone something you could use everywhere. Maybe MasterCard or Amex could do it, or my bank.” needs to come up with a . “I use PayPal a lot online because it keeps me from having to register in universal app. PayPal would be a lot of places.” ideal to do that, something you . “What I didn‟t like about the Dunkin‟ Donuts app is you had to authorize could use everywhere. Maybe a replenishment. They now have the option of autoreplenishment.” MasterCard or Amex could do . “I don‟t accept payments with PayPal, but when my daughter was going to school, we were able to accept donations for the school through it, or my bank. PayPal, and for T-shirts and raffle tickets.” PayPal & Square Customer . “Square is pretty universal too. I work at the Apple store, and we sell New England Square readers.”

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5) ONLINE CONSUMER SURVEY USING SURVEYMONKEY Beginning on Feb. 15, Blueshift conducted an online survey of 287 PayPal account holders. Only one third of the account holders knew that PayPal is an accepted form of payment in stores and only 15 of those account holders have made an in- store payment with PayPal. Additionally only a little over 14% expect to use their PayPal account in the next three months. However 79.24% of those surveyed believe using PayPal for in store payments will be safe and secure.

 Do you know that you can use your PayPal account at physical stores and not just online?

 Do you use your PayPal account at physical store checkout lines?

 Will you begin using your PayPal account at physical store checkout lines in the next 3 months?

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 Do you think PayPal transactions in checkout lines are safe and secure?

Secondary Sources A review of mobile payment and technology websites confirmed that PayPal has continued to enter into partnerships to expand it offline reach. For example, Coinstar Inc‟s. (CSTR) coin ATM program will participate with PayPal, and gas station checkout specialist Gilbarco Veeder-Root will accept PayPal at 30,000 POS stations. Meanwhile, PayPal has launched its offline payment platform in the United Kingdom. Consumer adoption of mobile wallets is expected to take a long time, but PayPal is the most widely known solution. PayPal‟s senior director of communications responded to an article discussing this lack of consumer adoption, stating PayPal has not actively promoted offline payments to its account holders because it used 2012 as a “test and learn” year. PayPal expects consumer use of its in-store solutions to ramp up this year. Finally, PayPal‟s co-founder is launching a mobile payment solution, leading to even more competition in the emerging market.

 Feb. 27 MarketWatch article Coinstar will expand PayPal‟s ATM program after a successful trial run in Dallas. The program will give customers with PayPal accounts the ability to withdraw and deposit money using the coin-counting machines. . “Coinstar said the test showed about 40% of kiosk users who used the PayPal feature did so an average of two times a month.” . “For PayPal transactions, the Coinstar kiosks charge fees. Depositing coins into a PayPal account charges Coinstar‟s standard 9.8% fee for coin counting, and adding paper money charges a $3 fee up to $300 dollars and a $6 fee above that.” . “At Coinstar machines, which also tend to draw low-income customers, withdrawing money from a PayPal account charges a $3 fee and is limited to $500 in a calendar month and $200 per day. That rate isn‟t unusual for withdrawals at non-bank ATMs.”

 Feb. 12 Tech Crunch article PayPal has signed a deal with gas station checkout solution Gilbarco Veeder-Root. . “Gilbarco tells us that it has installed over 30,000 POS systems across North America which will now see PayPal integrations, to give you an idea of scale. Initial efforts will have users paying for their purchases either via QR code, or by entering in their fueling position into a mobile application.” . “The Gilbarco deal will have a much larger impact in terms of „PayPal at the pump,‟ so to speak, as the 150-year old Gilbarco currently works with 19 of the top 20 convenience store operators in the U.S. Mike Schulte, Gilbarco President in North America, said the PayPal mobile solution will become „a cornerstone of our suite of retail applications.‟”

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 Feb. 22 Venture Beat article PayPal is expanding its offline payment effort into the United Kingdom, with a European version of PayPal Here. This device allows smart devices to become mobile POS terminals. . “PayPal Here will soon be available in the U.K., marking its first (and it hopes not its last) entrance into the European market.” . “PayPal Here is a triangular „dongle‟ that turns smart devices, like phones and iPads, into mobile point-of-sale terminals. PayPal launched Here in March as a direct competitor to Square, a hot startup that pioneered this type of system back in 2009. The combination of a dongle (in Square‟s case, it is square) and software that tracks the transactions makes it significantly easier and less expensive for small business owners to accept digital payments.” . “PayPal already has a large presence in the U.K. and seeks to capitalize on its existing network as well as name recognition. It plans on using the U.K. as launching point to take on the rest of Europe.”

 Feb. 12 Pymnts.com article A comScore report discussed consumers‟ lack of knowledge about or decreased use of digital wallets and concerns over the method‟s security. PayPal offers the best known digital wallet. . “According to comScore, 72 percent of respondents were aware of PayPal‟s digital wallet, with Google coming in a distant second with 41 percent. MasterCard‟s PayPass wallet registered with just 13 percent of those surveyed, while Square Wallet and Visa‟s V.me earned just 8 percent each.” . “Only 48 percent of consumers said they‟d used PayPal‟s wallet, while Google Wallet once again trailed behind at 8 percent. Square Wallet, V.me and LevelUp each registered 2 percent use, while Isis and Lemon Wallet saw just 1 percent usage each.” . “Forty-seven percent cited security, safety, theft or loss of phone as the main reason they‟re hesitant to use digital wallets”

 Jan. 16 StorefrontBacktalk article and a response by Anuj Nayar, PayPal‟s senior director of communications PayPal‟s partnerships with 23 additional national retailers propel the company into the lead mobile payment position in the United States. However, no consumer utilization statistics have been made available. . “Sometimes, it‟s what is not talked about in a news release that is much more informative than what is. Consider PayPal. On Monday (Jan. 14), the eBay subsidiary named 21 chains signed up to offer brick-and-mortar PayPal (along with two more chains too shy to be identified) and said its system is now available in 18,000 store locations. That‟s the good news: PayPal is now the most widely available U.S. mobile-payments provider, with more stores using it at POS than even the very successful Starbucks approach.” . “The bad news: PayPal has said nothing whatsoever about how many shoppers in all of these stores, plus Home Depot, JCPenney, Abercrombie & Fitch, Toys „R‟ Us, Foot Locker and Barnes & Noble, We have made it crystal clear have actually used the service. And of those who did, how many came that 2012 was a test & learn back to use it again? How many dollars are shoppers pushing through year for our in store initiatives. the retail PayPal system? You know that if those figures were anything 2012 was focused on creating less than humiliating, they‟d have been released by now.” . Comment from Anuj Nayar: “Its [sic] Anuj from the PayPal team here. I product experiences that solve just wanted to address some of the points you raised in your article. real customer problems—not We have made it crystal clear that 2012 was a test & learn year for our technology for technology‟s sake. in store initiatives. 2012 was focused on creating product experiences … We have deliberately held back that solve real customer problems—not technology for technology‟s sake. We are already a part of the SBUX mobile card app for automatic on direct to consumer marketing top up and its incredibly successful. The „secret sauce‟ is that you get until PayPal is available at more mystarbucks reward points and your 12th coffee is free. It a loyalty places that customers want to play not a convenience play. Our solutions are all created to help shop. That‟s happening very retailers ease the friction points between them and their consumers— quickly and it will continue to be it skipping the line (Jamba Juice); loyalty (SBUX); empty hand payments, gift cards and coupons (Home Depot and others) or other grow to millions of locations in friction points. We have deliberately held back on direct to consumer 2013. marketing until PayPal is available at more places that customers want Anuj Nayar, PayPal Executive

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to shop. That‟s happening very quickly and it will continue to grow to millions of locations in 2013.”

 Feb. 27 Mobile Payments Today article PayPal co-founder Max Levchin has launched a mobile payment solution called Affirm. . “AllThingsD‟s Kara Swisher first reported on Levchin‟s new venture. According to her report, Levchin said Affirm is intended to be a „digital tab‟ that will combine a log-in through Facebook, back-end processing by Stripe and a number of other features to guarantee that the payor is who he says he is and is good for the bill.” . “The intent of Affirm is the same as many other digital wallets entering the space: make mobile commerce easier and lower shopping cart abandonment on mobile devices.”

Additional research by Dann Anthony Maurno, Renee Euchner and Mason Rudy

The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not own securities in any of the aforementioned companies. OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial Group LP. © 2013 Blueshift Research LLC. All rights reserved. This transmission was produced for the exclusive use of Blueshift Research LLC, and may not be reproduced or relied upon, in whole or in part, without Blueshift‟s written consent. The information herein is not intended to be a complete analysis of every material fact in respect to any company or industry discussed. Blueshift Research is a trademark owned by Blueshift Research LLC.

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