PayPal has announced an extension of its offline strategy with Discover Financial Services  that will bring PayPal to more than 7 million merchant locations across the U.S., and potentially to millions of international merchant locations in the future.

Starting in 2013, Discover will work with PayPal to enable participating merchants to accept PayPal through their existing relationship with Discover.

Discover Financial Services is a direct banking and payment services company.  The firm operates the Discover card and offers various home and private loans. Its payment businesses consist of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories.

The initial PayPal and Discover arrangement was announced in 2010, when Discover card customers were provided with ways to use PayPal as a way to send money online and through mobile devices.

Now, consumers will be able to use PayPal at merchant locations, something that will likely have an impact on existing mobile payment services such as the ones found in coffee-house chains. It also makes a stronger connection between our online spending habits and those we experience in the meat world.

Don Kingsborough, PayPal’s Vice President of Retail points out that the system should be relatively painless for merchants as well as customers, “This relationship quickly extends PayPal’s reach to millions of merchant locations nationwide and is a milestone moment for us that will create new benefits for Discover merchants without requiring new hardware or software”

Closer to a digital wallet

To offer the service merchants will not have to install or upgrade existing point-of-sale hardware or software as PayPal will be tapping into Discover’s existing systems. This will be a huge advantage for PayPal which already dominates online payments as it will surge into real world transactions via an existing network.

PayPal’s 50+ million active U.S. customers are expected to help increase customer engagement, loyalty and incremental sales at the physical point of sale. So coupons and loyalty program points will be automatically applied where relevant to particular stores and merchants.

Initially the system will require a PayPal Access card which is funded in the usual way via a bank account or credit card as you do with PayPal online. Eventually this will be phased out as customers get used to the idea of paying via PayPal and mobile will take a greater role in the system by sharing data from the cloud with merchants to make payments.

It seems that the future where getting your purse nicked is a hassle but having your phone stolen is a calamity is a one step closer with PayPal taking bold strides into the physical realm.

Image Credit: Steve Ganz