eBay Inc., whose PayPal Inc. is already a strong competitor in person-to-person payments, is looking to its Skype Internet telephone service as a way to expand its international money-transfer volume.
The San Jose online auction company expects to add the PayPal service to Skype's software sometime this year. Observers said that the marriage of international calls and remittances makes sense, but faced a challenge because of a mismatch in the customer profile of remittance recipients and PayPal or Skype users.
However, Rajiv Dutta, PayPal's president, said in an interview that the large number of Skype users worldwide would boost PayPal's volume in countries where it already offers money transfers services.
In Europe and Asia, "Skype has very, very deep penetration and broad acceptance, and it is a consistent part of a lot of people's lives," he said. Adding the PayPal function to the Skype software would be "a terrific source of customer acquisition for PayPal, as well as a great enhancement to Skype."
Mr. Dutta also discussed some of PayPal's other offerings, including its mobile payments service and the virtual debit card program it is testing.
The $2.6 billion purchase of Skype in 2005 raised eyebrows among observers, who questioned the link between eBay and the telephone service, but eBay has said all along that it saw synergies between Skype and PayPal.
Mr. Dutta said an upcoming version of the Skype software would include a link to users' PayPal accounts and would let people click a button to initiate a PayPal transfer to friends or family members while talking to them on the phone. The software will work in any country where both PayPal and Skype operate.
People making a Skype call would already be connected to PayPal's software, he said, and the PayPal button would make the remittance process easier than using another company's Web site.
"Very simply, it's a usability advantage" over other methods of sending money, he said. "You are more likely to be engaged in using Skype."
Mr. Dutta, who was Skype's president before he became PayPal's in July, said 4% to 5% of international calls placed from the United States are made through Skype, and the numbers are higher in other countries.
He said he could not estimate how much the combination would increase PayPal's international payments, nor would he give PayPal's current cross-border volume.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said PayPal and Skype are a natural combination.
"Phone calls and remittance have always been really, really tightly correlated," he said.
Though there have been marketing tie-ins in the past, such as remittance companies offering free phone calls as a promotion, consumers have paired the two already, he said.
"Usually there is a phone call that is taking place before, during, or immediately after" a money transfer, Mr. Schatt said. "You always want to notify the person you're sending money to right away," and recipients often need a code to obtain the funds.
There are some potential downsides to PayPal's plan, he said. To receive money through this service, "you've got to be a banked, online consumer, and not everyone is."
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that PayPal's pricing structure is the opposite of what consumers expect for person-to-person payments, since it is "really set up so the recipient pays the fee" for the transaction. "One of the challenges PayPal would have to overcome to become a good alternative to money transfers is to reverse the payment structure and have the sender pay the fee."
PayPal personal accounts have limits on how much money they can receive for certain types of transactions. Getting a certain amount of money funded in certain ways may require a premier or business account, which carries a fee for receiving money.
Another potential issue is how users withdraw funds, he said; only PayPal's premier and business account holders can receive a PayPal debit card to access the money in their accounts; other users must transfer the funds to a bank account.
Adding PayPal to Skype's software "will attract some volume," Mr. Bezard said. "I'm just skeptical that it's going to rapidly become a big business."
Several other companies are using new telephone technologies to appeal to the international remittance market, though most have focused on cell phones and other mobile devices.
Cyphermint Inc. of Marlborough, Mass., said Monday that it has created a mobile version of its PayCash online payment system. Last week Citigroup Inc. announced a deal with Vodafone Group PLC, a British wireless provider, to test a service in the United Kingdom and Kenya, and MasterCard Inc. said it would test an international remittance system this year with GSM Association, a trade group for mobile phone companies.
PayPal also has PayPal Mobile, a phone payment system it introduced in April, mainly to support commercial transactions and charitable donations. That service does not permit cross-border payments. Mr. Dutta said its volume is small but growing, despite some issues.
AT&T Inc.'s Cingular Wireless LLC, the top U.S. carrier, does not support the short codes that PayPal uses to route purchase information, though all other U.S. carriers do, Mr. Dutta said, and PayPal is close to resolving this issue.
PayPal Mobile has 100,000 registered users, who type instructions in a text message to send money to one another or to purchase items they see in advertisements. PayPal's standard payment service has 133 million registered users, including 37.6 million who made transactions in the fourth quarter.
Mr. Dutta said that text messaging would remain the primary way PayPal Mobile is used, but that his company is considering adding software to make it easier to use that service with some handsets.
The service also is getting more attention from charities, he said. For example, it was used during Mardi Gras to let people donate money directly to the city of New Orleans.
Though these services expand PayPal's accessibility, "PayPal is, fundamentally and foremost, a Web-based application," Mr. Dutta said. To this end, his company is working to make itself more prominent on merchant sites.
It is competing for space with Google Inc., which launched a payment service in June that offers merchants better rates than most acquirers, or even PayPal.
PayPal also is tweaking its virtual debit card program, which lets consumers generate a one-time MasterCard number for online purchases when they do not want to provide their actual card number to a merchant. One recent addition is the ability to recall the one-time number in a user's transaction history in case the merchant needs that information to adjust an order.
