As I walked through the Financial District in San Francisco last week I came across one of the oldest forms of marketing  promoting the newest way to pay for something; a sandwich board offering $5 off for customers who pay using PayPal.

I did a double take when I saw the PayPal logo for most restaurants promote their relationships with Yelp, Foursquare or OpenTable…let alone promote the use of a mobile payment tool.   I’ve seen very minimal payment tool promotion beyond what Peet’s is doing to promote their relationship with Google Wallet.  As we all know, Google Wallet has gained little traction.

I ducked into the restaurant, Bamboo Asia, to get the special offer that required me to pay with the PayPal mobile app to receive $5 off my purchase.  I ordered a Bhangra Bowl and a tea.  I opened the app on my phone, paid and received the discount.  Cool.  It was easy.

Clearly Bamboo Asia is part of PayPal’s merchant payments pilot program and has been provided incentives to generate consumer awareness and drive app downloads. PayPal has an up-hill battle here for there are other payment solutions, such as Square and Dwolla, who are competing for awareness and consumer wallet adoption as well.

The $5 off purchase offer may help PayPal increase trial, but it falls down at driving repeat use.  This week I went back to Bamboo Asia and used the PayPal app to pay.  The restaurant manager said, “Oh, the discount is one time only.” “No worries…I still want to pay using PayPal,” I replied.  The manager looked at me like I had a booger hanging from my nose. “Why would you want to use the app again without the discount?”  That statement points out the importance of not only increasing adoption, but also providing reasons why consumers should continue paying with the mobile wallet.

Unfortunately this store manager was only focused on the immediate discount offer and didn’t really see a benefit if his customer base continued to pay with PayPal.  Bamboo Asia customers were also not provided a reason to pay with PayPal either.  This should be concerning for PayPal for two reasons.  First of all, the merchant will see a spike in sales for the short term, but will not see a continual lift from repeat customers.  In this case, consumers downloaded the app just to get the discount. The merchant may wonder why he participated if none of the PayPal app users become repeat customers.  Secondly, PayPal is driving downloads, but not demonstrating to customers the value in continuing to pay with PayPal…which leaves the consumer mind share WIDE open for a competitor to tell consumers WHY they should pay with a mobile payments tool.

What do PayPal and the merchant need to do as a follow up to the “download the app” discount program?  Offer incentives for consumers to continue to pay with PayPal.  Maybe Bamboo Asia offers special deep discount offers to users who use the app to pay 10 times?  Or, maybe PayPal creates a consumer loyalty program that offers points every time a consumer uses the app to pay for anything at a restaurant? OpenTable followed a similar strategy by rewarding their customer base with 100 points for each reservation made through their service. I believe the customer is sent a check or discount coupon from OpenTable to spend at a restaurant of their choosing.

Given how crowded the mobile wallet space has become, it’s clear that consumers need an incentive to adopt a solution. PayPal has the right brand awareness in the B2C and B2B space.  The big question is how PayPal can make it easy for merchants to use their mobile payment tools. A second factor to success will hinge on what co-op marketing programs PayPal can build out with merchants to provide incentives for consumers to pay with PayPal.  PayPal, the field is wide open now.  You’d better act fast or the teams at Square and Dwolla will get there first!