PayPal Taps Its Parent in Wireless Initiative

Register now

PayPal Inc.'s widely discussed entry into mobile payments could get a big boost from the company's plans to integrate the new service with an existing mobile service operated by its parent, eBay Inc.

The combination would enable people to use their phones to shop in both the real world and online.

Though several companies have tried to convert mobile phones into mobile payment mechanisms, there has been little interest from U.S. consumers. However, the backing of PayPal, which has more than 100 million registered users worldwide, and eBay, the undisputed giant of online auctions, could go a long way toward driving mobile payments into the mainstream.

The new service, which was officially unveiled April 6, has already helped the San Jose company win the deals with large merchants it has long wanted. Kevin Dulsky, PayPal's senior director and general manager of mobile, said PayPal Mobile has made his company "more attractive to more merchants."

This A-list of new business customers includes Viacom Inc.'s MTV Networks Co., NBC Universal's Bravo channel, and News Corp.'s Twentieth Century Fox Home Entertainment LLC. "This is the first time they've been using PayPal," Mr. Dulsky said.

Consumers using the PayPal service can authorize purchases by sending text messages to numbers printed in advertisements. The charges are billed to their PayPal account and the goods shipped to the address on file with PayPal.

PayPal plans to merge it, though it does not know when, with an eBay service that sends text message alerts to customers.PayPal said that 69% of its payment volume in the fourth quarter came from eBay auctions, but it has made efforts to turn more non-eBay merchants into customers. However, despite two marquee-name customers that accept PayPal transactions, Dell Inc. of Round Rock, Tex., and Apple Computer Inc. of Cupertino, Calif., most of its business customers are small Internet merchants.

A service PayPal started offering in June 2005 lets shoppers pay for online purchases with credit cards, routing the transaction to the merchant's PayPal accounts behind the scenes. That service likewise has enrolled small online retailers for the most part.

Mr. Dulsky said the company expects the mobile service to boost person-to-person payments in situations where PayPal is not normally used - for responding to classified ads, for example. "The person-to-person stuff is going to be more impactful than people realize," he said.

PayPal said that in 2004 it was a payment option for 91% of eBay auctions (the most recent figure it would provide). The auction site currently offers to send users text message alerts when they are outbid in an auction or have won one.

People can check their personal eBay accounts and place new bids with their mobile phones, but only by using mobile Web services. Not all phones support this service, and carriers often require users to sign up for their data service, which typically carries an extra monthly fee. eBay also offers additional features to mobile phone users for $3.99 a month.

PayPal Mobile uses text messages rather than mobile Web, and lets customers make transactions by phone if they authenticate themselves with a personal identification number.

Sara Bettencourt, a PayPal spokeswoman, said the company plans to combine PayPal Mobile with eBay's text messaging service so customers can enter new bids and pay for purchases by phone.

"Our intention is to integrate mobile payments with eBay's mobile service," she said, though there is no set schedule for this project. She said eBay's mobile service was developed by Bonfire Media LLC of Los Altos, Calif., and integrating it with PayPal's software will take time.

Avivah Litan, a vice president and research director at the market research firm Gartner Inc. in Stamford, Conn., said this feature would substantially increase PayPal's transaction volume by giving its most avid users a way to spend more, and more often, at auctions.

Many experiments in mobile payments have focused on using the phone at the point of sale. PayPal's approach - which avoids the issue of persuading merchants to install new POS systems - may work best when combined with eBay, Ms. Litan said.

JPMorgan Chase & Co. and Visa U.S.A. have been testing a system in Atlanta since December that incorporates a payment chip into a phone, enabling it to be used with contactless card readers already in use. Morgan Stanley's Discover Financial Services has also been testing a contactless phone system.

Ms. Litan said those services have had little appeal to the average user to date. "There has been nothing that demands mobile payments," she said.

However, she said that combing the PayPal and eBay services could "be the first" mobile payment application that meets a real need. "eBay shopping is a fertile application for mobile payments because of the nature of auction bidding." Consumers cannot always be at their computers to monitor auctions they want to win, she said, and PayPal Mobile can help them follow live auctions.

Still, Ms. Litan said PayPal Mobile today is "pretty ho-hum," especially since some of the items sold through it can be found cheaper online with little effort.

Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, agreed the combination of PayPal Mobile and eBay's mobile service will be powerful. "If I'm a merchant today on eBay, I'm relying on all of the traffic that goes on eBay," he said.

But unlike big companies with hefty advertising budgets, the average eBay merchant's only means of pitching prospects is the Internet.

The current eBay mobile service does not offer that wider marketing capability, Mr. Schatt said. Many mobile phone users are "not sophisticated enough to go into a mobile Web browser, or don't want to pay" their carrier's additional fees to use it.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER