The recent news of Discover Financial Service’s deal with PayPal has led some to suggest that the credit card company might soon be able to compete on an equal footing with more prestigious financial players like American Express and Mastercard, but is their new offering really going to be beneficial to their customers?

We think that PayPal will face an uphill battle to convince anyone to adopt their new “offline” payments service. For starters, anyone who wants to do so is first going to have to apply for a special card, because the vast majority of retailers that accept Discovery cards are not equipped with those special PIN pads that are needed to enter your individual pin and cell phone number to complete the transaction. As such, most people probably won’t bother.

But this is just a small obstacle for PayPal, as eventually most stores will upgrade their point-of-sale systems to incorporate these PIN pads. The real trouble with PayPal is, well, PayPal itself.

PayPal is a unique financial institution, quite different from any of its competitors. It’s most certainly not a bank, as it isn’t even insured by the FDIC.  Nor is it a credit card company, as they don’t lend anyone any money – your account has to be funded by your good self before you can use it to buy things.

In part because of its ‘unique’ status, PayPal often seems to think it can do whatever the hell it likes, arbitrarily freezing people’s accounts for up to six months for seemingly no good reason (just check out some of these horror stories and you’ll see what I mean).  And if you do happen to find your account suspended and your funds put on ice for some reason, good luck getting hold of someone to sort it all out…

PayPal is pretty unpopular as far as most financial institutions go, and the majority of people are not going to want to trust the company with any cash sum beyond a couple of hundred dollars at the most.  So who would benefit from using the new PayPal card?

Surprisingly, it might be that PayPal has no interest in targeting seasoned consumers who already have their favorite credit cards. According to Motley Fool, the company is probably gambling that it can sell itself to younger users – teenagers and young adults – in order to get its foot in the door, so to speak.

“The segment of the consuming population that is likely to quickly transition to this form of payment is teenagers and young adults. Suddenly a group of consumers that had to rely on cash or collaboration from their parents to obtain a credit card will be able to head to the mall and buy things in a new, progressive way,” writes Douglas Ehrman.

It’s certainly a gamble, but it will be interesting to see if it’s one that pays off. If, as Ehrman suggests, teenagers do take to the PayPal card, there might just be a chance that others are prepared to overlook PayPal’s chequered reputation, if only for the benefits of hassle-free payments without the costs associated with credit cards.