Discover Financial Services, PayPal's offline partner, has signed contracts with 50 merchant acquirers, which will help extend PayPal's in-store payment service to more than two million outlets in the United States by the end of 2013.
Total System Services Inc and Heartland Payment Services Inc, two of the largest merchant acquirers, signed up in recent weeks, joining other big players such as Vantiv Inc, WorldPay, Global Payments Inc and First American Payments, according to executives at Discover and PayPal.
PayPal's expansion into physical stores gives the company access to a market that is roughly ten times the size of the online payments sector where it got its start over a decade ago.
Linking up with merchant acquirers is crucial to the PayPal offline push because these companies are important cogs in the payments ecosystem, signing up and underwriting merchants for payment networks including Visa Inc, MasterCard Inc and Discover.
"Partnering with merchant acquirers is the smart thing to do," said Diane Offereins, president of payment services at Discover. "They are basically the conduit between the merchants and the consumer."
Recent merchant acquirer agreements mean merchants, including fast-food giant Burger King, cosmetics retailer Sephora and gadget seller Brookstone, will accept PayPal in their stores by the end of this year.
Discover also works directly with about 1,500 of the largest retailers in the United States and it has been negotiating with them to accept PayPal in their stores.
Nordstrom Inc, a big department store operator, recently signed up for PayPal in-store payments through a direct relationship with Discover, according to Don Kingsborough, the executive overseeing PayPal's offline expansion.
However, Wal-Mart has so far resisted attempts by Discover and PayPal to get PayPal into its big-box stores.
"We do not see the value proposition for brick and mortar merchants to accept PayPal in-store as it is an aggregation of tender types already accepted in-store at a higher cost and complexity to the merchant," Wal-Mart spokesman Randy Hargrove wrote in a recent email to Reuters. He declined to comment further.
During a mobile payments conference panel in San Francisco in November that included PayPal President David Marcus, a Wal-Mart executive sounded hostile to accepting PayPal in stores.
Gibu Thomas, a mobile executive from Wal-Mart's e-commerce business, said the retailer had to be careful not to inadvertently introduce another "middle man" into the payment process. Wal-Mart's goal is to eliminate middle men, which helps keep prices low, he added.
Discover's Offereins confirmed this week that Wal-Mart has not agreed to accept PayPal in its stores yet.
Wal-Mart is working on a rival mobile payment technology called Merchant Customer Exchange, or MCX, with other large retailers including Gap Inc, Lowe's Cos Inc and CVS Caremark.
© Thomson Reuters 2013