PayPal Inc. isn’t saying much yet about its new payment exchange, but it is hoping participating telecommunication companies lower their carrier-billing fees so more online merchants can benefit.
PayPal, a unit of San Jose, Calif.-based eBay Inc., on Feb. 27 launched the PayPal Carrier Payment Network. Industry observers have expected such an initiative since July, when eBay acquired Zong, a company that enables consumers to add purchases they make with their mobile phones to their phone bills (
David Marcus, PayPal vice president of mobile, confirmed as much on his PayPal blog March 1, stating the company intends to parlay Zong’s and PayPal’s “extensive carrier relationships” with PayPal’s network of millions of online merchants and 106 million active customers to “build a standard for carrier payments that benefits not only the carriers, but also more merchants and consumers.”
The initiative also could signal a switch in how consumers and merchants view carrier billing. In the past, such billings have been limited to online game developers and digital publishers that use the method to enable consumers to purchase goods directly in the software application or the online game, Marcus noted.
Consumers may find carrier billing convenient for such payments, but other online merchants selling digital books, music, dating services and other content consider carrier payments too expensive, he added.
Last July, Boku Inc. offered software that would allow Android phone users the option to place purchases for mobile games on their phone bills, creating a transaction billing of 10% to 20% for merchants. That rate was significantly lower than what carriers historically charged through short message service delivery of digital goods that required merchants to pay as much as 50% of each purchase as a transaction fee (
In addition, carriers set limits on how many dollars a consumer can attach to their phone bill from digital products or services purchased over a specific time period, which merchants find difficult because it does not allow them to realize maximum profits, Marcus said.
PayPal has not made public its specific rates or transaction fees, but it will require carriers involved in its payment network to revise their standards to benefit the consumer and increase payout rates to merchants.
That mobile carriers have banded together with the Isis mobile-payment platform indicates they are open to new revenue ideas and don’t want to put all of their “revenue baskets in the same bank,” Adil Moussa, a senior analyst at Aite Group, a Boston-based consulting and research company, tells PaymentsSource.
Isis, a joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless, formed in early 2011, plans to test a mobile wallet concept, mostly in Austin, Texas, and Salt Lake City this year (
The success of the PayPal Carrier Payment Exchange relies heavily on the pricing model, Moussa suggests.
“How much of a concession the carriers would be willing to make to be involved is the key,” Moussa says. However, regardless of whether PayPal establishes a flat fee or a percentage of each transaction as the standard, the carriers still must view PayPal’s vast merchant and customer base as a “significant revenue channel,” he adds.
Aside from PayPal seeking to capture another segment of the online market, the payment exchange could lead to various forms of payment methods, Moussa contends.
“Payments through a phone, with just a phone number as an identifier, is really great,” Moussa says. “It could be extended to face-to-face payments, where the consumer phone number and a PIN are the identification pieces.”
PayPal is positioned to ease the process for consumers and merchants, Moussa contends. It ultimately can offer various forms of payment, either through a PayPal account, a mobile carrier account, or other forms using a PIN, he adds.
Besides the payment exchange, PayPal also revealed this week a partnership with United Kingdom mobile carrier Three.co.uk to offer Google Inc. Android mobile devices with preloaded eBay mobile-payment applications.
PayPal also announced Feb. 28 a partnership with Spanish ticketing company Entradas.com to enable consumers to skip standing in ticket lines and purchase tickets for concerts or movies through a mobile phone and PayPal account.
In a collaborative effort with Yotel, a New-York based upscale hotel online-reservation company, PayPal will enable its customers to use the browser on their smartphones to reserve rooms through Yotel using PayPal accounts instead of through an application download.
All of PayPal’s moves fit into the company’s overall strategy for payments, Moussa suggests.
“Over time, all of these incremental things, even if they are small, end up forming a much bigger picture,” he says. “As many services as PayPal can plug into, resulting in new offerings for consumers, the company moves into a better position.”
Besides the mobile-payment initiatives, PayPal continues to push its presence at the point of sale in retail locations. Home Depot Inc. says it plans to expand its acceptance of PayPal payments at payment terminals in all 2,200 of its stores (
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