PayPal, Starbucks pilot beacon-enabled payments using Samsung wearables (mobilecommercedaily.com)

The PayPal app for the Samsung Galaxy Gear 2 smart watch

PayPal is piloting a new payment method in its on-campus Starbucks that links together Bluetooth Low Energy beacons with Samsung Galaxy smart wearables to enable payments without the need for a bank card or even a smartphone.

With smartphone-enabled payment adoption continuing to move along at a slow pace, the news is an example of the growing momentum behind beacons as a transformative in-store experience. While PayPal and Starbucks are already leaders in the mobile payments space, they are clearly not resting on their laurels and continue to investigate how best to leverage technology to simplify payment experience.

“We began the pilot program earlier this year and it has been performing well since,” said Kathy Chui, senior PR manager at PayPal, San Jose, CA.

“Overall, PayPal employees that have used Beacon and/or Samsung Gear 2 smartwatch have loved their experience and are excited for the larger rollout,” she said.

Wearable wallet
With PayPal’s new application for the Samsung Galaxy Gear 2 smart watch and the Gear Fit fitness band, users receive a push notification notifying them they have checked into the coffee house when they walk into the area covered by a PayPal Beacon installed inside.

The user’s photo automatically appears on the point-of-sale system, enabling employees behind the counter to greet a customer by name. Another push notification is sent once a sale is rung up, enabling users to tap their wearable to confirm payment.

PayPal released its app for the Gear 2 and Gear Fit devices earlier this month with the idea that there are times when consumers do not want to have to take out their wallet or smartphone to make a purchase, such as when they are at a merchant they purchase from on a regular basis.

PayPal app on the Samsung Gear 2 smart watches

Using the app, Gear 2 and Gear fit users can check-in to pay with PayPal at thousands of stores in eight countries. Users can also check their PayPal balance, get payment notifications and save offers from local businesses.

“The Wearable Wallet, in particular around smart watches, has some go-to-market advantages over the mobile phone,” said Drew Sievers, former CEO at mFoundry and now founding partner at fintech investor Operative Capital.

“Because the devices are issued by a non-carrier, there shouldn’t be the historical battles for access to a secure element,” he said. “That should accelerate the usage and adoption since there are fewer intermediary hurdles to overcome when launching a product.

“For many mobile payment players, it was difficult to create a business model that worked if you were paying the carrier a portion of each transaction. The Wearable Wallet can remove at least one stakeholder from the business.”

Square’s troubles
Smartphone-enabled mobile payments have been slow to catch on for a variety of reasons, a couple of which could be addressed by this solution from PayPal and Starbucks.

First, the use case for smartphone payments is not that different from someone having to pull out a wallet to make a payment. Therefore, there has not been much of a reason for consumers to switch behaviors.

However, by pairing wearables with beacon technology, this enables the check-in to happen automatically and further streamlines the payment experience for users.

Additionally, smartphone payments have been hampered by ongoing struggles between various stakeholders. Wearables could bypass some of these issues.

The news of the PayPal, Starbucks pilot could also be more evidence that the coffee house chain’s relationship with mobile payments provider Square – which similarly uses a photo ID on the POS terminal – could be losing steam. Multiple recent reports have suggested that Square is losing money quickly and could be up for sale.

Starbucks made an investment in Square two years in a deal that also saw Square handle all of the chain’s credit card transactions. However, recent reports suggest that Square has been losing money on the deal because of the lower-than-average fees associated with processing the credit card transactions.

“It’s interesting that the solution that PayPal is pushing, with a picture ID on the POS linked to the buyer, is quite similar to the standard Square Wallet offering,” Mr. Sievers said. “This definitely brings into question whether the Square relationship with Starbucks is starting to lose momentum as has been reported in various articles.”

“The Wearable Wallet isn’t a mutually exclusive concept to smartphone payments,” he said. “Ideally, the wearable component — say a watch or bracelet — facilitates the transaction while the phone allows for deeper functionality around things like reloading value, offer evaluation, etc.”