- PayPal wants to be more than a way to pay online.
- It's investing in brick-and-mortar payments, via its Venmo credit and debit cards as well as QR codes embedded in its app as a way to pay in-store.
- While QR codes haven't been a popular payment option in the US, they've caught on in places like restaurants this year as a touch-free way to browse a menu and order food.
- Analysts are optimistic that riding the wave of QR popularity will help PayPal gain traction in-store.
- Visit Business Insider's homepage for more stories.
This time last year, QR codes were a novelty piece of technology in the US, mostly used as an advertising and marketing tool. But the black and white squares have grown in popularity, primarily in restaurants where they've been used as a touch-free way to browse a menu and order food.
PayPal, long known as a checkout button online, is riding that wave of QR popularity — and hoping it can wedge into the competitive market of in-person payments.
"QR is not as foreign to us in the US now as it was pre-pandemic," Paul Golding, payments analyst at Macquarie, told Insider.
And QR codes were only a piece of PayPal's massive investment in new tech this year. It's been on a product launching spree, rolling out a buy now, pay later option and the Venmo credit card. It also added cryptocurrencies to its app.
All that has fueled PayPal's record-breaking 2020. It's seen the strongest growth in payments volumes and new accounts in its history, and its stock price has more than doubled since the beginning of this year.
Read more:Inside PayPal's record-breaking 2020 — and its plans to transform capitalism
PayPal wants to bring its ease of use online to brick-and-mortar retail
PayPal added the ability to pay with QR codes to its app in May this year. Using the PayPal or Venmo app, shoppers can scan a QR code that has been printed out or presented on another screen to make purchases.
And while spending shifted online out of necessity this year, consumers are still shopping in-store, and are likely to return to brick-and-mortar retail as the pandemic wanes. Until now, consumers have been slowly adopting touch-free payments via cards and mobile wallets. Using QR codes to check out is relatively new for US consumers.
With the proliferation of QR codes in places like restaurants this year, consumers could take to the convenience and start using QR codes at checkout, too.
"Just like you're starting to see in the US with contactless payments, tap-to-pay, things like that, you'll start to see QR codes increasingly used as a form factor of payments by consumers," Jeffrey Cantwell, director and analyst at Guggenheim Securities, told Insider.
PayPal's QR tech is integrated with its entire platform, including its Venmo app and rewards platform Honey. The Venmo credit card, which launched in October, even has a QR code printed on the card. And it's all part of the payments giant's strategy to link in-person and online spending in one place.
"As we think about accepting payments, we think about both online and offline," Peggy Alford, head of global sales at PayPal, told Insider.
"Even though COVID has required that businesses do everything online, we will eventually go back to there being in store as well. What we're hoping to help these businesses do is digitize even the in-store experiences," Alford said.
QR codes are new in the US, but 2020 brought additional use cases
PayPal, like most digital payments companies, is in the business of cash displacement. Any opportunity to shift spending from cash to a digital form of payment, be it via card, mobile wallet, or QR code, is a win.
"Where PayPal is very innovative is around the idea of cash to electronic payment conversion," Cantwell said.
PayPal has a strong foothold in online checkout. In-store, it's not as popular. But consumer aversion to touching cash and keypads this year has prompted PayPal to invest big in contactless forms of in-person payments.
"We made a huge pivot in the spring of this year to say, 'we've got to invest in QR, or more generally, contactless payments in the offline world,'" PayPal CFO John Rainey told Insider. "Customers don't want to handle cash. They don't want to touch a keypad on a point-of-sale device in-store."
Its Venmo credit and debit cards are contactless-enabled, and now, it's looking at QR codes as another way into the brick-and-mortar market. The adoption of contactless payments seemed an inevitability, at least via contactless cards and digital wallets. QR codes have less traction as a payment method, but Rainey expects that in time, they'll catch on.
"The question was always when it would happen. The answer is, it's happening now. The time is upon us," Rainey said. "That's not to say it's going to happen in a month or a quarter or two," Rainey said. "I believe this will take place over a period of years. But we've invested heavily to help shape some of these trends."
And while QR codes weren't an inevitability, PayPal's brand and scale, in addition to an increased awareness of QR codes, could boost usage.
Read more: PayPal's CFO explains why the payment giant is going against the grain and betting big on QR codes as the new way to pay in-store
"It's very timely," Cantwell said.
PayPal's QR codes are now live at over 8,000 CVS pharmacies. It's also planning similar rollouts with major retailers including Bed Bath & Beyond, Nike, Samsonite, and Tumi. It's also seeing small businesses adopt the tech, which enables them to accept a payment simply through their smartphones.
"It's almost like a clean-slate opportunity for them," Golding said. "Even though it isn't initially what I would have thought of as far as what a digital payments platform would do to go and find a way of branching into brick and mortar, it makes so much sense."
PayPal will compete with giants like Square for in-store payments
While PayPal is well-known for its online checkout button, it's got less traction in-person.
"When we think about PayPal, they were above their peers in online payments," Cantwell said. "It's physical payments where they're seeing the greatest competition, and where there's a number of very well-regarded competitors."
Square, for one, is a massive player for in-person payments, especially among small businesses.
Read more: These 8 PayPal execs are leading the company during a record period of growth as e-commerce and digital payments boom
"On the small to medium business side, we do see Square offering a compelling merchant package to small businesses," Goldings said.
Beyond payments, Square offers services like payroll processing and small business lending. And its one-stop shop has proved sticky among merchants.
But PayPal, too, offers more than just payments acceptance for merchants. It facilitates B2B payments, so merchants and vendors can pay and get paid. It also offers a business credit card and working capital.
"These are all huge focuses as we think about what is going to be a sustained digitization of commerce," Alford said.
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