• by Mark Walsh  @markfwal, April 19, 2013

PayPal last year signaled its intention to become a major player in the emerging market for in-store mobile payments with various steps. Among the biggest was a deal with credit card network Discover that would allow PayPal users to make payments at up to 7 million retail locations in the U.S.

That alliance begins rolling out this month, with PayPal’s payment system being integrated into the millions of point-of-sale terminals that support Discover Card payments.

That move accelerates e-Bay-owned PayPal’s expansion into in-store payments, which to date have focused on partnering with national retail chains, including Home Depot, Barnes & Noble, Foot Locker and JCPenney. During eBay’s first-quarter conference call on April 18, CEO John Donahoe said PayPal's POS solution is already available at 20,000 merchant locations through those deals.

“We’re aggressively pursuing this opportunity, focused on solving real consumer and merchant pain points and enabling growth for merchants of all sizes in local commerce,” said Donahoe.

In 2012, the company also launched its answer to Square in the form of PayPal Here, a payment system aimed at small businesses that allows them to accept credit and debit card payments via a card reader attachment for the iPhone, Android phones and the iPad. It also accepts mobile payments through the consumer PayPal wallet app.

With PayPal Here for small merchants, and direct partnerships with big retailers in place, Donahoe said the Discover deal would help PayPal cover more of retail mid-market. Between the different options, he expects in-store payments via PayPal to be implemented at roughly 2 million offline merchants, with more to come in the next couple of years.

With more than 128 million PayPal accounts worldwide, including more than 50 million in the U.S., the company already has a big advantage over nascent payments rivals, including Square, Google Wallet and Isis, among others. Among payments-related apps, an IAB report released last week found that only PayPal’s app has gained significant traction to date, with 37% of those surveyed having downloaded it.

Still, not everyone is betting that PayPal is going to win out at checkout. 

In a research note previewing eBay’s first-quarter earnings, JPMorgan analyst Doug Anmuth questioned whether there’s strong enough demand for another payment option when checking out with a credit card is still relatively simple. “We look for deeper integration with the PayPal wallet and perhaps more incentives to targeted offers for commerce,” he wrote.

In that vein, Donahoe said during the conference call that having PayPal as an additional payment service would allow merchants to offer more personalized services, including through mobile check-ins. “We think that’s going to be a really interesting and potentially exciting consumer enhancement,” he said.

But eBay executives didn’t give analysts much to go on to project the potential of PayPal’s offline business based on initial results. CFO Robert Swan said the company would provide more information about payment volume from its in-store checkout initiative “as it becomes meaningful and material.”