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Faux sale: Goods on display at the fictional Hudson + Vestry boutique, part of a mock shopping center PayPal uses to demonstrate payment technology. A display at rear shows the profile of a customer.

Hidden near the lobby of PayPal’s headquarters in San Jose, California, is a small shopping center. There’s a hardware store with well-stocked shelves, a coffee shop, and even a chic boutique boasting hip bags and leather boots. The only thing missing: customers.

That’s because this impeccably neat minimall is actually a showcase created by the online-payment behemoth to give visiting merchants—and journalists like me—a peek at how PayPal hopes to dominate the way people pay for stuff in the so-called real world, too.

Some of the experiments on display began to reach malls and checkout counters this month. That’s when Home Depot became the first large retailer to begin accepting PayPal at its payment terminals. The company also unveiled PayPal Here, a triangle-shaped credit card reader that plugs into a smart phone. It’s similar to the reader sold by the mobile payment startup Square.

PayPal’s new brick-and-mortar strategy marks a big shift for the company, which got its start by giving small merchants a way to accept credit card payments online for a fee. That niche has grown rapidly, and last year PayPal (which was acquired by eBay in 2002) processed $119 billion in transactions, including $4 billion from mobile devices like phones and tablets.

E-commerce continues to grow rapidly but still accounts for only 9 percent of all U.S. retail sales, according to comScore. The remainder occurs in physical stores, which explains why retail payments are rapidly becoming a battlefield contested by tech companies including PayPal, Google, and even mobile-phone operators.

Sam Shrauger, a PayPal veteran responsible for the company’s product strategy, says the company’s ultimate goal is to get all the stuff in your actual wallet—credit cards, debit cards, gift cards, coupons—working together in a digital fashion, to give you more flexibility in how, and when, you pay for things.

While it might sound risky to launch so many new products at once, Rick Oglesby, a senior analyst with Aite Group, says the strategy appears to be working. “They have a very ambitious, cross-ecosystem approach, which I think is significant,” he says. “That makes them a very disruptive force across a big swath of the business.”

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Credits: Rachel Metz, PayPal

Tagged: Business, Business Impact, business

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