On Friday, a story caught my eye. No, it was not the “rumored” Apple entry in to mobile payments. That is a post yet to be written. This was actually a story on the ReadWriteMix with David Marcus of PayPal. And the direction indicated by David Marcus for Paypal – even if it were simple, incremental improvements to the checkout process – portends important things for Paypal, and more so for its merchants – both online and offline. To me, it seemed like David Marcus was challenging Paypal to step out of its comfort zone and find its relevance in retail – once more.
To quote RWW’s Owen Smith:
“He’s (David Marcus) also changing the checkout experience to deemphasize paying with a bank account—a method which has long helped pad PayPal’s bottom line, since bank-account transfers are cheaper for PayPal to process, but which annoys some users.
“I always feel like PayPal is trying to trick me” into using my bank account to pay, I observed.
“Well, that’s over,” Marcus said. “
Why does this matter?
To me, this has more significance than the umpteenth reminder of why Apple will upend the experience of paying with a phone. You see – if I am on a site other than Amazon, Paypal is my preferred choice of payment. With my wallet in another room and not knowing my credit card PANs by heart, I can bank on its convenience and the comfort of a userid and password. But unfortunately, Paypal has come to distort the convenience that once differentiated itself from the rest. One of my biggest peeves paying with PayPal these days – has been that Paypal slyly defaults your funding source to cheaper payment options – Bill Me Later, My PayPal balance, Instant Transfer from a Bank Checking account (in that order) before it even considers any of the debit or credit cards I have on file. This makes sense for Paypal, less so for the consumer or even the merchant. More so, this causes unnecessary friction.
To prove my point, I attempt a NewEgg transaction:
Step 1: Add to Cart on the NewEgg Product page.
Step 2: In the cart, choose to pay with PayPal.
Step 3: Login to PayPal.
Step 4: I immediately regret my decision. Despite being unwavering in my choice of “No I do not want to sign up for Bill Me Later. Thanks for asking.” – PayPal believes it could change my mind if it were to ask one more time. Choose “No” for the 100th time knowing full well, PayPal will dutifully remind me tomorrow.
Step 5: Listing of Funding Sources and Priority. I realize that Paypal has chosen its own order of funding sources – ranked by its own preference. Grit my teeth and click “Change” as always, while noting that “Bill Me Later” still shows up as an option – just in case I have changed my mind since the last step.
Step 6: Choose Credit Card on file as the funding source instead of PayPal’s choice. Knowing full well that tomorrow (or the next transaction) Paypal will reset it and institute its own rank order.
Step 7: If by now I have not suddenly been reminded that Amazon carries the same product – click “Confirm Order”.
To compare, I attempted the same on Amazon, choosing an item that was sold by a marketplace seller, but fulfilled by Amazon (One would think it should make a difference, but it does not).
It took me all of 3 steps to go to the “Confirm Order” page if I were not logged in. And if I were signed in, then simply clicking “1-Click” would have sufficed.
Payments: Amazon’s red-headed stepchild
Amazon on the other hand, is notable in its disdain towards Payments, that it spares no time thinking whether the customer’s funding source is a debit account or an interchange heavy rewards card. The focus is always on shortening the time between “Add to Cart” and “Confirm Order”. It has managed to keep the buying process consistent, especially as its over 2 million marketplace sellers sold over a billion units – contributing to 40% of Amazon’s 2013 Q3 sales and generating over $17B of Amazon’s $32B gross merchandise value for that period. Amazon is moving away from being the web’s no #1 retailer to the world’s largest online marketplace, focusing less on payments rails and more on becoming the rails for commerce – both online and offline. I believe it is able to constantly visualize new ways to create value only because it has avoided capitalizing on what is blatantly obvious(reducing payment acceptance costs) – and forced itself to solve the tougher problems – including how to derive value from creating a world-class logistics backbone for millions of its online marketplace merchants and those merchants that it will soon woo – offline. More on that in a subsequent post.
Paypal – What is its raison d’etre?
In comparison, Paypal seems to be ever the slow learner – eager to add new steps to the checkout experience(Bill Me Later), only to eke out a bit more profitability. It ignores customer preferences in Payment choices over and over, in the hope that the customer may be either too busy, or too lazy to notice. But we always do. And we never forget.
The friction PayPal institutes as an excuse to be profitable with each transaction, instead has highlighted its singular mind and yet an inability to visualize new ways to add value to the merchant. Every debate around Paypal’s merchant value proposition has historically centered around interchange benefits – but those hardly serve as the differentiator it once was. It is unfortunate that cost becomes the only differentiator for a merchant to choose Paypal – who then has to look the other way from the customer experience mess it creates. When a checkout experience could go from being completed in a single click to 7 clicks – something’s invariably broken – and in this case, it’s Paypal’s fault. Soon, either the merchant will realize the friction it invites to save a few pennies – or Paypal will realize that it is a one-trick pony.
I am ignoring cases where schemes like MasterCard has finally moved on putting together a “proportional response” – inventing a tax on its rails (a staged wallet fee) – something specifically coined to hurt Paypal. I believe an Ebay/Paypal focused on solving for payments is missing the point. It’s missing the point on where it has strengths that can be brought to bear to fix broader problems for the merchant – one that if it forgets to solve – Amazon has the capabilities, the scale, the brutal efficiency and the intent to solve. Despite EBay Enterprise’s shaky start, and lackluster performance so far – it holds the key to what can make EBay/Paypal great and relevant in retail.
In order to find that resolve, David Marcus has to sabotage what was once Paypal’s raison d’etre, in the hope that it will find it again – in new corners, in new relationships, in new business models.
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