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PayPal, Discover team to bring mobile wallet to millions of stores

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PayPal is teaming with Discover to extend its fledgling mobile wallet service to millions of additional retail locations across the U.S., striking a major blow in the battle for m-commerce supremacy.

eBay-owned PayPal launched its mobile wallet earlier this year, allowing consumers to connect their existing PayPal account to their mobile device and fund purchases by entering their phone number and PIN code into the retailer's point-of-sale terminal. The service also features price comparison and shopping list tools as well as support for coupons and offers. Beginning in 2013, Discover will enable all 7 million existing merchant partners across the U.S. to accept PayPal transactions--the firms are also negotiating to extend the alliance to Discover's international payments network.

PayPal and Discover said that merchants will not be required to install or upgrade existing point-of-sale hardware or software to support the mobile wallet. The companies added they will roll out in-store signage to promote the PayPal option to customers.

PayPal boasts 113 million active online customers worldwide, with more than 50 million in the U.S. market. The company is currently conducting mobile wallet trials across American retail chains including Home Depot, Abercrombie & Fitch, American Eagle Outfitters, JCPenney, Foot Locker, Office Depot and Toys "R" Us. Earlier this week, Reuters reported fast food giant McDonald's is testing PayPal services at select locations in France, enabling consumers to place and pay for orders via dedicated smartphone app or the mobile Web.

PayPal's mobile commerce initiatives also include PayPal Here, introduced in March, which enables small businesses and other users to process credit and debit transactions by swiping the card through a small, triangle-shaped dongle that attaches to their smartphone or tablet. Users also can access their mobile device's camera to scan and process cards and checks. More than 300,000 merchants in the U.S. and Hong Kong have signed up for PayPal Here. Last month, PayPal said it expects to handle $10 billion in  mobile payment transactions in 2012, an increase of 150 percent over a year ago.

PayPal's agreement with Discover represents a significant win over rivals including Square, which offers its own mobile transaction dongle. Beginning this fall, coffeehouse chain Starbucks' 7,000 company-owned U.S. stores will begin processing all credit and debit card transactions using Square's mobile commerce technologies, a move to slash operational costs.

PayPal also moves ahead of the Near Field Communications-based Google (NASDAQ:GOOG) Wallet, which enables consumers to make purchases by tapping selected Android smartphones at more than 200,000 MasterCard PayPass-enabled merchant terminals across the U.S. Although Sprint Nextel (NYSE:S) offers a handful of NFC-enabled Android smartphones supporting Google Wallet, Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and T-Mobile USA have shunned the service as they focus on building out their own nationwide m-commerce network, Isis, which is slated to begin consumer trials this month.

The wild card is Merchant Customer Exchange, a nationwide m-commerce network aligning big-box retail chains Walmart, Target, Best Buy and Sears with 7-Eleven, Alon Brands, CVS Pharmacy, Darden Restaurants, HMSHost, Hy-Vee, Lowe's, Publix Super Markets, Shell Oil and Sunoco. The MCX partners unveiled the initiative last week, indicating plans to develop a mobile application supporting smartphone-enabled purchases across all participating merchants as well as consumer offers, promotions and retail programs. MCX has not yet announced a launch date, and few other details are known.

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