• by Mark Walsh  @markfwal, May 24, 2012

PayPal has announced partnerships with two of the biggest point-of-sale (POS) terminal providers and the expansion of its in-store payment system to an additional 15 retailers. Together, the moves strengthen PayPal’s bid to become a key player in the emerging digital wallet arena.

The company has signed agreements with VeriFone, the No. 1 POS terminal company, used by 80% of the top 200 retailers, as well as Equinox, the No. 3 competitor in the space. PayPal had previously partnered with Ingenico, allowing it to roll out its payment technology through the three top POS terminal providers.

“While retailers still decide whether to adopt PayPal in their physical stores, we think the ability to quickly upgrade software on POS terminals removes a great deal of friction around the willingness of offline merchants to adopt PayPal,” noted JPMorgan analyst Doug Anmuth, in a research note Thursday.

PayPal also named 15 new retail partners, including Office Depot, Barnes & Noble, Foot Locker, JCPenney and Jamba Juice. (PayPal has worked mainly with Home Depot to date.) The eBay subsidiary also launched a payment tool for medium-sized businesses with multiple locations. Some 300,000 small- to-medium-sized businesses have already registered to use PayPal Here, its mobile payment service for small shops.

Unlike other mobile wallet initiatives such as Google Wallet and Isis, PayPal’s offline payment system is not built on NFC (near field communications) technology, making it easier for retailers to integrate PayPal with existing POS systems. At checkout, users can either enter their phone number and PIN linked to their PayPal accounts or swipe a prepaid PayPal card to pay.

Still, industry observers say PayPal will have to add more value to its in-store payment offering to truly entice consumers to switch from cash or credit. “We think upcoming enhancements to PayPal’s digital wallet -- including loyalty card tracking, coupons, and the ability to change payment sources at a later date -- could help drive consumer adoption,” wrote Anmuth.

PayPal unveiled its mobile wallet service in March at the SXSW conference in Austin, Texas.