August 17, 2012 / 8:29 PM / 8 years ago

PayPal could heat up mobile payments race if McDonald's test pays off

* McDonald’s tests mobile app featuring PayPal in France

* PayPal mobile service demonstrated at McDonald’s franchisee conference

* Square’s deal with Starbucks creates ‘urgency’ for PayPal-analyst

By Alistair Barr

SAN FRANCISCO, Aug 17 (Reuters) - PayPal is in the early stages of what may be a blockbuster mobile payments deal with McDonald’s Corp, the world’s biggest hamburger chain.

McDonald’s is testing a mobile payments service featuring PayPal at 30 of its restaurants in France. Earlier this year, McDonald’s ran demonstrations of a broader PayPal mobile payments service at its franchisee conference in Orlando, Florida.

A McDonald’s spokeswoman confirmed the France tests and said the PayPal demonstration at its conference was part of a booth that features “technology coming within the next 24 months or so.”

PayPal is racing against start-up Square Inc and other technology companies to become the mobile payments service of choice as consumers increasingly use smart phones to make purchases in shops, restaurants and other retail locations.

Square struck what could be its most important partnership to date last week when it teamed up with Starbucks Corp , the world’s largest coffee chain.

PayPal, owned by eBay Inc, has signed up more than 15 retailers, including Home Depot and Office Depot , to accept PayPal payments in their stores. [ID: nL1E8GOGS5]

But landing a partner the size of McDonald’s, with over 30,000 restaurants, would be a big win, according to analysts.

“McDonald’s would certainly be a whale,” said Gil Luria, an analyst at Wedbush Securities. “If McDonald’s customers can stand in line and order on a mobile app and pay with PayPal that is a huge extension of PayPal’s reach.”

Square’s deal with Starbucks “creates a sense of urgency for PayPal,” he added. “This is a race.”

The test in France lets McDonald’s customers order food on smart phones through a McDonald’s mobile application, or online, and pay with PayPal. There is a separate line in the test locations to pick up the meals, according to a PayPal spokesman.

Demonstrations at the McDonald’s franchisee conference in Orlando featured a more “in-depth” service that would allow customers to order and pay using PayPal’s digital wallet and mobile application, the spokesman said.

Rolling out a service like this may help McDonald’s cut lines at restaurants, which is a key factor in maintaining and growing same-store sales, Luria said.

“If they can shave 10 seconds off wait times, same-store sales could go up a lot,” he added. “It’s substantial.”

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