Digital Transactions Authoritative, insightful and timely information for payments professionals
PayPal Inc.'s new payment service for mobile phones, which the eBay Inc. processing unit is expected to launch commercially within a few weeks, will have to offer more than basic person-to-person payments to be a success, one expert observer says. “I think it will need to go beyond just P2P (at least, in the U.S and European markets) to be profitable,” says Ed Kountz, senior analyst at Jupiter Research, Boston, in an e-mail to Digital Transactions News. “While it's clear that the second coming of m-commerce is upon us?given the re-interest that has developed around P2P and other types of phone-based payment solutions?the value of P2P transactions is only part of what consumers will ultimately demand from such services.” After word leaked earlier this week that PayPal was preparing to enter the market for mobile payments, the company announced it is testing its service, called PayPal Mobile, with eBay employees. But San Jose, Calif.-based PayPal, which dominates the market for alternative payment processing in e-commerce, clearly intends a very near-term commercial launch for the new service, which will depend on short-message-service (SMS) transmissions to transfer funds from consumers to other individuals and, in some cases, to merchants. “The service is not readily available yet for users,” says a PayPal spokesperson. “That will happen in the next few weeks.” The service is expected to roll out in the U.S., Canada, and the U.K. PayPal is not charging transactions fees to users of PayPal Mobile (except for those who receive funds in Premier or Business accounts), leading to speculation that the service must eventually emulate PayPal's move in e-commerce toward consumer-to-business payments to allow it to earn acceptance fees and achieve profitability. News of PayPal Mobile comes as a number of entrepreneurs and established companies gear up to exploit growing consumer interest in making payment through their handheld devices. Schaumburg, Ill.-based Motorola Corp. announced this winter a new electronic wallet for mobile phones that will accommodate both payments and various digital media (Digital Transactions News, Feb. 9). This product could tie into ongoing tests of near-field communication technology for mobile payments being conducted by the bank card associations. On the other end of the spectrum, a tiny startup in Redmond, Wash., TextPayMe Inc., has already launched an SMS-based mobile-payments service that could be directly competitive with PayPal Mobile (Digital Transactions News, Dec. 21, 2005). Kountz, however, cautions against letting recent news announcements lead to the conclusion that mobile payments are set to boom. “I still think U.S. mobile data habits are evolving towards this, so expect adoption and success to be measured in years,” he notes. Kountz expects PayPal Mobile to draw interest from both current accountholders and those who do not yet have a PayPal account (those who do not must sign up for one to use PayPal Mobile) “as some of today's core users adopt and some mobile-device-centric (heavy data) users come to see the value of such a service.” That could help PayPal penetrate a new market of potential accountholders. The processor currently boasts more than 100 million accounts. With PayPal Mobile, consumers can pay other individuals by typing an SMS message instructing PayPal to transfer funds from their accounts. The payments are secured by PINs, and consumers can use only the phone they registered with PayPal Mobile at enrollment. The service appears to be aimed chiefly at person-to-person payments, though in a program called Text to Buy it will allow consumers to pay merchants and other commercial entities that display special short codes for the purpose in their advertising. So far, PayPal has not announced participating businesses for Text to Buy.
