PayPal Exec: U.S. Market's Not Ready for Mobile Payments

As financial companies aggressively promote mobile banking services, and many lay the groundwork for mobile payments, PayPal Inc. says the U.S. market is not ready to use phones to initiate transactions.

The San Jose company has offered a mobile person-to-person payments and shopping service since 2006, but to date it has found few users byond online auctions.

Scott Thompson, PayPal's recently promoted president, says he believes that phones have a bright future when it comes to purchases and payments but that this future could be years away. Mobile payments will probably first catch on abroad, he said, in countries where mobile technology is already ahead of that in the United States.

PayPal's mobile payments service "was a good offering, but it was early," he said in an interview last week. "I am absolutely convinced that mobile will take off outside the U.S. before it will happen inside the U.S."

Though PayPal's users are not ready for mobile payments now, he said, he is planning for the time when they will be, and the company is continuing to invest in its systems. "We believe at some point — and I can't tell you whether it's three years, five years, or 10 years — but at some point, this will be a big method of payment for consumers around the world," he said. "You have to have a conviction against things that you know will be big over time. When we get it right, it will be big."

Mr. Thompson, who previously was PayPal's chief technology officer, took the top spot at the company in January when Meg Whitman, the chief executive of its parent eBay Inc., said she would step down at the end of this month. Rajiv Dutta, PayPal's previous president, was promoted then to head eBay's auction business.

Though PayPal is moving slowly in mobile payments, other companies are not. Many financial companies that offer mobile banking services also offer payments capabilities such as bill payment and transfers, and several credit card companies and issuers have tested near field communication chips, which can make devices function as contactless payment cards.

Obopay Inc. is also promoting its mobile person-to-person transfer service. The Redwood City, Calif., company's original model was sending transfers to users' prepaid accounts, but the company said last week that it had modified its systems so that Obopay customers can use their phones to initiate payments to any U.S. bank account, through the automated clearing house network. The change makes Obopay's phone service akin to PayPal's online person-to-person service, prompting some observers to ask whether PayPal plans to match Obopay.

Neither Obopay nor PayPal will say how many people are using their mobile payments systems, and Nick Holland, a senior analyst at Aite Group LLC in Boston, said this makes it hard to say whether either company has attracted much of a user base.

He said that Obopay's commitment to mobile payments could say more about its business strategy than its success. "Obopay's entire business model is around mobile, so I guess they have to be vociferous about it. They don't have anything to fall back on," he said. "How are they actually doing? I don't know."

(Obopay reiterated in an e-mail message Friday that it would not disclose usage statistics.)

PayPal's mobile payment service has two features. Users can initiate transfers to each other with text messages. They can also use text messaging to make purchases that are billed to their PayPal accounts and shipped to the addresses associated with those accounts. Shoppers must include a code number in their messages that some merchants feature in printed advertisements for their products.

Mr. Thompson said most of the volume for PayPal's mobile payment service comes from eBay users. They use a related mobile service to keep track of auctions and then use PayPal with their phones to pay what they won.

"When we offered eBay checkout through mobile interaction and then you had PayPal payments happening on the end of eBay checkouts … we saw a pretty significant uptake in mobile usage," he said. Though he would not say how many sales were paid for by phone, through PayPal, the figure "actually surprised me," he said.

The main reason he thinks that mobile payments will be slow to catch on in the United States is that the infrastructure remains inadequate to support the features that will make such services easy to use.

Aite's Mr. Holland said that the browsers typically available on phones today are not comparable to those on computers. This gap could limit payments capabilities now, but it is closing. "It will be fairly common to have an Internet browser on your phone in a couple of years," he said. And because these browsers will be able to display actual Web sites rather than simplified versions designed for phone access, there will be little need for payment systems to adapt.

"It's not mobile commerce so much. It's e-commerce on a phone," he said.

Red Gillen, a senior banking analyst for the Boston market research firm Celent LLC, said that, aside from the early marketing PayPal did for its mobile payments product, it has largely kept silent in the mobile payments debate, and with good reason.

Services like PayPal's mobile purchasing system are "really not on the radar screen, not in the U.S. at least," he said.

"The closest competitor in this space is Obopay, and Obopay has made a lot of big press announcements and so forth, but I haven't seen their numbers," he said.

In this regard, Obopay's approach is typical of what Mr. Gillen has seen in the mobile payments space, he said: "A lot of noise, no numbers. And maybe PayPal's saying they're not going to be a part of that."

For PayPal, "the big effort right now is to get the off-eBay business," Mr. Gillen said. "That's taking up a lot of their resources."

But despite the talk about what PayPal's role will be in the mobile space, PayPal is wise not to have made mobile a priority, he said. "They're doing the right thing. There's far more existing business out there with off-eBay than there is in mobile."

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