The Digital Skeptic: PayPal Robs Banks

CLEARWATER, Fla. (MainStreet) -- The Home Depot (HD) here on Gulf-to-Bay Boulevard is letting us hold up banks. Lot's of 'em. In broad daylight. In fact, we're doing it as we buy a socket wrench at the self-scan terminal during Memorial Weekend.

It turned out we could pay for some hardware to tune up our boat with either Visa (V), American Express (AXP), MasterCard (MA) or -- wait for it -- PayPal. Not at HomeDepot.com, but at a real-life Home Depot.

Banks that think longer hours equals innovation are sure to be unsettled as PayPal moves from all-Internet to adding a bricks-and-mortar strategy.

"Today it's really hard to find an online retailer that does not accept PayPal," says David Marcus, president of the eBay (EBAY)-owned, San Jose, Calif.-based transaction company, in a company-released video. He is clear that the next big score for his company is in traditional retail sales.

"The offline retail market is 17 times larger than the online opportunity," he says.

Get over it, banks; PayPal is busting it large into bricks-and-mortar retailing. It has spent the past year testing its checkout terminals at 2,000 Home Depot stores and last week announced -- break out your pencils -- that 15 other major retailers would support the system soon, including stores such as JCPenney (JCP), Barnes & Noble (BKS) and Toys 'R Us.

Based on what this service seems capable of in our testing, and statements from the company, the PayPal retail strategy strikes at the heart of the American financial network -- and our perpetually struggling U.S. banks.

Buckle up, bank investors: PayPal is looking more like a digital John Dillinger every day.

PayPal: The digital banking tommy gun
After TARP, the mortgage banking crises and the demise of Goldman and all the rest, it's a lot to ask a banking investor to think in terms of the threat of technological innovation. But click on PayPal's "In Store" page and you get a feel for the bank profit-killing gun PayPal is waving around.

Sign up and you will see that PayPal has managed to engineer a point-of-sale system that does away with traditional debit or credit cards. Never mind that deck of financial identity plastic. The PayPal retail product doesn't even need a smartphone -- just your phone number and an easy-to-remember PIN.

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