SAN JOSE, Calif. – PayPal will soon extend its reach through Discover's network – enabling direct acceptance of its mobile wallet at more than seven-million American merchants.

Up until now, the ecommerce unit of eBay has been inking individual deals with big box retailers, such as Home Depot, as well as terminal makers and middleware providers. This latest deal places PayPal in the same league as the issuing banks in terms of its ability to issue a card that is accepted over an open-loop network, according to American Banker, an affiliate of Credit Union Journal.

The partnership will change the way PayPal handles those transactions as well. Once the system is live (in spring 2013, the companies say), Discover will be the network over which those payments ride, and PayPal will continue to process the transactions. Previously, PayPal did both jobs.

“This is a really fast-changing world and this event accelerates that change,” Don Kingsborough, PayPal’s vice president of retail and prepaid products, told American Banker. He added merchants will not have to upgrade their terminals or point of sale software to accept PayPal at the point of sale.

PayPal already uses its network to fund a prepaid MasterCard managed by card marketer NetSpend Holdings and issued by the Bancorp Bank, a unit of Bancorp.

But this latest move creates an unprecedented method for merchants to accept PayPal payments no matter whether a customer is online, offline or on a mobile device.

Discover is creating a “virtual private network” for PayPal that will keep the technology company’s virtual wallet in a closed-loop system. This will de facto create a new transaction type separate from credit and debit with unique pricing, branding and operating rules. PayPal will determine the pricing, which will differ by type of retailer.

In the second half of next year, months after the initial launch, merchants also will get access to special marketing tools from PayPal, American Banker reported.


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