In Mobile Payments, It's PayPal 2, Google 0

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PayPal Inc.'s next round of mobile payment features, including its rumored future as an additional payment system for Google Inc. phones, shows the strength of PayPal's mobile strategy and the weakness of Google's historical approach to payments.

PayPal is exploring many of the more advanced mobile features that even many banks today lack. For example, it plans to join the very thin ranks of companies that allow consumers to make check deposits with mobile phone cameras — adding paper checks as an entirely new funding option for PayPal accounts.

PayPal has also recently begun testing its system with contactless payment stickers from Bling Nation Ltd., and is said to be an upcoming payment system for phones running Google's Android software, where Google currently favors its own payment system, Checkout.

Laura Chambers, the senior director of PayPal Mobile, said PayPal considers it important to meet the needs of the growing number of people worldwide who access the Internet on mobile devices.

"You can't be an Internet payment company without being a mobile payment company," she said.

This week, PayPal, a unit of eBay Inc., will add a charitable-donation feature to its app for Apple Inc. iPhones; the check-scanning feature is planned for a later update. Chambers said PayPal considered other options for check deposits, such as using a computer scanner, but concluded that mobile would be the best approach for consumers.

Chambers would not discuss the rumored talks between PayPal and Google to make PayPal a payment option for buying apps on Google's Android phones. PayPal is the payment system behind Research In Motion Ltd.'s BlackBerry App World and is an option for buying apps on Apple's iPhone.

Gwenn Bezard, a research director at Aite Group LLC in Boston, said that even though several other payment companies are focused on turning phones into payment devices, PayPal's attention to mobile app sales puts it "right in the middle of where the storm is now."

Google's Checkout has gone in the other direction, Bezard said. Though it is the payment system for the increasingly popular phones that run its Android operating system, Checkout has proven less popular in the broader e-commerce space, and Google's reported talks with PayPal could be a concession that Google's payment strategy may never equal the success of its mobile strategy, he said.

"Ultimately, the benefit to Google of growing the Android platform far outpaces the downside of potentially helping out a competitor in payments" by supporting PayPal on Google's devices, Bezard said. "To me, it's sort of a no-brainer."

George Tubin, a senior research director at TowerGroup Inc., said that if Google agrees to allow PayPal on Android phones, "it's a recognition by Google that PayPal is really the leader in this space and it's more highly known and it's more highly used."

Google declined to comment on its negotiation with PayPal, which was reported by Bloomberg News on Friday.

Checkout was launched in 2006 as a way for online shoppers to make payments without divulging their card details to merchants. Though it had the strength of Google's brand behind it, some merchants found the interface too rough, saying they put up with the service only because it was so inexpensive; Google offered free processing to merchants who also paid for advertising with Google's AdWords service.

In 2009, Google did away with the free processing offer, instead largely matching PayPal's pricing. This was seen as such a drastic move that some observers speculated that Google might be trying to drive users away from Checkout in preparation of an eventual shutdown.

Later that year Google revealed it was planning to add features to Checkout, but observers said it might have been too late to undo the damage.

"I don't think Checkout has been doing very well," Bezard said. "I don't think Google has been very successful" with it.

Bezard said he suspects the reported PayPal deal is a sign that Google's Android team has finally joined the many other disillusioned merchants who have tried to work with Checkout.

The Google employees "who are pushing Android probably want to have no barrier to getting applications out," Bezard said. Even though Google makes enrollment in Checkout straightforward for consumers, many consumers would prefer a payment option that they can use at more merchants, Bezard said. A Google spokeswoman did not respond to a request for comment on Checkout's performance.

"A lot of consumers today are comfortable with PayPal," Bezard said. "Why would they change?"

Tubin said that if Google decides to offer Checkout and PayPal side by side on Android phones, it may lead many users to favor PayPal.

And if the people at Google "find that the vast majority of transactions go through PayPal," he said, "it may be the end of the road for Checkout."

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