PayPal Trumps Square’s Deal With Starbucks by Partnering With Discover

Under a new partnership being announced with Discover, PayPal is super-sizing the number of U.S. merchant locations at which it will be accepted — more than seven million.

“The whole industry has been looking for a landmark that says that all of this is really happening,” said Don Kingsborough, PayPal’s VP of Retail Services. “This is an important deal for us, because it gets us to over seven million locations pretty seamlessly.”

Groundbreaking deals such as this one are becoming commonplace in the industry, as businesses move quickly to make it possible for consumers to pay with their mobile phone or some other form of digital currency at the cash register.

Just two weeks ago, Square made a huge splash after announcing that Starbucks would use the start-up to process all of its credit and debit transactions.

Now, one of Square’s biggest rivals is making it clear that it is still in the game.

In ranking the two deals, Ken Paterson, VP of Research at Mercator Advisory Group, says he would guess that PayPal’s deal is potentially larger. “It could bring PayPal to the majority of card-accepting merchants across the country,” he said. “The potential scale involved here is very significant.”

Discover may not hold the same cachet among consumers as Visa and MasterCard, but it reaches nearly as many merchants, roughly 95 percent of the two other payment networks combined. And when matched up with PayPal’s more than 50 million users in the U.S., the two could mark the first mobile payments network that spans both millions of users and millions of locations.

Starting in April, Kingsborough said, Discover’s merchants will be able to begin accepting PayPal’s charge cards. Or consumers may choose to pay by entering their mobile phone number and PIN at the terminal (which requires no wallet). The merchants will also have access to other PayPal features, such as the ability for consumers to order online and then pick up their purchase in the store.

In the future, PayPal could provide other features to participating retailers, such as location-based check-in capabilities and loyalty programs.

Kingsborough expects the rollout to be fairly easy, because no software upgrades will be necessary, given that PayPal already has partnerships with the necessary hardware partners. “We’ve been working on this for 18 months, and have the building blocks in place,” he said.

Separately, PayPal already has deals with 16 merchants and expects to have 20 signed up by the end of the year. Today, consumers can pay with PayPal in 3,000 stores, including all Home Depots and some Abercrombie & Fitch, Jos. A Bank and Jamba Juice locations.

Kingsborough said it will give the payment company a cut of each transaction for the right to run via Discover’s network, and added that the deal is not exclusive, but that it would be “highly unusual [for either party] to do a similar deal with someone else.”

Mercator Advisory Group’s Paterson said that the deal is mutually beneficial. “It’s a small fee on each transaction, but the numbers involved get pretty large pretty quick,” he said.