Digital wallets are one of those perennial tech promises that have never quite materialized. Thanks to new wireless technologies like Bluetooth Low Energy, however, it seems like they're finally on the cusp of becoming a reality. We're just starting to get a sense of what this future might look like: not just personalized coupons pushed to your smartphone, but things like dynamic pricing, microtargeted fire sales, and in-store mapping and navigation. In other words, the next generation of retail. Of course, the most basic and perhaps most alluring aspect of this future is something much simpler: a more convenient check-out, where our smartphones eliminate the hassle of cash and credit cards once and for all.
Getting it right won't be easy. In-person payments are a delicate dance, and for a digital wallet to succeed, it will have to be easier than cash and plastic without losing the basic essence of what it means to make a physical purchase. Today, the main challenge surrounding the digital wallet isn't technology, it's user experience, and we're already seeing all sorts of companies gearing up to solve it. The latest is PayPal, who's making an aggressive play to put itself at the forefront of the frictionless shopping revolution with a new doodad called Beacon.
>Walk in, tell 'em you want to pay with PayPal, and walk out. That's it.
The device itself is a small triangular prism which businesses can plug into the wall or computer via USB. Using Bluetooth Low Energy, it will communicate with the PayPal app on shoppers' smartphones, facilitating simple hands-free payment. When it gets a wide release next year, it will work with PayPal's existing point-of-sale hardware partners--some small, iPad-based check-out systems like Erply, Leaf, ShopKeep and Vend, but also some bigger names like NCR, which already have hundreds of thousands of units at retailers around the world. Walk into one of these places, order a coffee, tell 'em you want to pay with PayPal, and walk out. That's it. You've paid.
Beacon expands on Here, the location-based payment service PayPal launched a year and a half ago. "What we found is that consumers loved that experience, that experience of being able to pay without a wallet," says Hill Ferguson, VP of Global Product at PayPal. "The problem is, we were having a hard time getting consumers to think about it." The reality is, taking out a phone, unlocking it, finding an app, and logging into a PayPal account is a lot more work than simply pulling out a wallet and swiping a credit card. "We hadn't taken enough friction out of that experience," Ferguson says.
With Beacon, there will be all the friction of a slip-and-slide. In fact, you wouldn't even need to take your phone out of your pocket to pay. Thanks to iOS 7's support for seamless, passive Bluetooth LE detection, after checking into a store once, you could set the app to automatically recognize that location with every subsequent visit. Of course, PayPal isn't alone here. Startups like Estimote are already investigating Bluetooth LE's potential for transforming retail, and credit card behemoths like Visa and MasterCard still very much dictate the terms for wider innovation (they're even playing nice to speed up adoption of their own in-card wireless tech).
PayPal does have one thing going for it, though: There's a decent chance it's already got some information for a credit card or a bank account of yours on file. If you've trusted them with your money before, that makes it a whole lot easier to trust them with it now.
>With Beacon, there will be all the friction of a slip-and-slide.
Still, the digital wallet isn't just about getting the technology right--it's also a matter of figuring out how the transaction of the future actually works as an experience. PayPal seems certain that hands-free payment is the way forward, but it's important to consider that humans have been exchanging something face-to-face ever since we started buying and selling things. Slipping out of an Uber without anything more than a "see ya" can feel a little strange; walking out of Target with a bunch of stuff underarm is even thornier behavioral territory.
Hands-free payments raise all sorts of questions: How do you let someone know the total they're paying? How does a cashier connect a person with a product with their PayPal account? (Remember Square's Pay With Your Name feature?) How do you ultimately confirm that the transaction's taken place? Ferguson says that the PayPal app will offer the option to set an on-phone confirmation screen for purchases above a certain price, say $50, but the point remains: There will be very real cognitive hurdles to getting people to reverse centuries of I-hand-you-money, you-hand-me-product transactions.
For now, though, Ferguson thinks giving people a taste of hands-free convenience will be enough to get them on board. "I don't think ubiquity is a requirement," he says. If there's one regular watering hole in your neighborhood or one coffee shop that adopts Beacon, that might be enough to make someone a convert. And once customers come to expect the convenience of bigger stores, Ferguson's confident wider adoption will follow. "If you get a big retail chain to radically enhance the way customers do business with them, I think you could see a big shift, a big wave of adoption come on that way. We'll start to see that late this year, early next in the U.S."
Of course, Beacon's not just about transforming the transaction itself. It's currently inviting developers to pitch their ideas for how they could use Bluetooth LE to transform retail at large--all those things like in-store maps and personalized recommendations that could augment conventional cart-pushing. "We like to think of ourselves as digitizing the analog world," Ferguson says. "We're building out an infrastructure for retail to enhance the shopping experiences consumers can have." In years to come, you'll walk into a store, like you always have, either looking for something in particular or just browsing around, and at some point, you'll leave.
"Everything in between that is white space for developers to think about," Ferguson says. By opening up some APIs, the model also gives retailers something they want: customizability. Ferguson thinks the ability to build a unique shopping experience around PayPal will entice big-name businesses to come on board. "Every merchant wants their own secret sauce," he says. "Retailers will demand a level of uniqueness. What's consistent about this is PayPal."
>Touch ID is bound to wind up as a payment option in Apple retail stores at some point soon.
But that vision raises another big question: Will shoppers let PayPal slip in as the middleman between their analog shopping and digital payment? The company's ubiquity and convenience is tinged by a history of frustrations--locked accounts, pesky fees, and, at least for a time, a general sense that the company just didn't care much about customer experience. Those aren't huge problems when you're effectively the only way to buy something off eBay, but they're precisely the places that need care and attention if you're going to be the steward for the retail experience of the future.
It's worth noting that part of PayPal's aggressive early movement here can be seen as a preemptive response to the first stirrings of a very formidable and UX-obsessed foe in the distance. Touch ID might just be for buying songs on iTunes now, but it's bound to wind up as a payment option in Apple retail stores at some point soon, and there's no doubt that Apple has designs on retail and real-world payments beyond that.
It's no coincidence that PayPal's beacon borrows a name from iBeacon, the Bluetooth LE protocol Apple baked into iOS 7. And it's worth pointing out that the messy business of cash and credit were one of Steve Jobs' greatest pet peeves--he reportedly didn't even want to use cash at all in the original Apple Stores. With Bluetooth LE, it seems like there's some inkling that Apple might be able to bring some Apple Store magic to other retailers. With a Beacon of their own, PayPal's trying to beat them to the punch.
