PayPal’s Opening Shots in a Scramble for T-Commerce

Having recently struck deals that will bring it to the physical point of sale, e-commerce processor PayPal Inc. has now branched into an entirely new market. Working with a television-technology specialist in Plano, Texas, PayPal has positioned itself to handle what promises to be a burgeoning flow of transactions from consumers who want to buy things with their remotes while they watch TV.

While it’s not live yet, the so-called TV buy button will let PayPal account holders purchase products they see on the screen by using their remote and special programming in their TV set-top box. Potential markets include specialized programs that present the eBay auction marketplace and Yellow Pages listings on the screen, as well as tie-ins with merchandise displayed during regular TV programming, such as a sweater worn by a character in a sitcom.

Meanwhile, PayPal also has a deal with San Francisco-based Related Content Database Inc. (RCDb) to process payments for its users. RCDb’s technology synchronizes merchandise shown on TV with relevant eBay auctions on a mobile device, allowing interested consumers to bid on the items.

These are the opening shots in a scramble for a new payments market some have dubbed TV-commerce, or t-commerce for short. The buy button is the brainchild of FourthWall Media, the Texas company. FourthWall, which builds marketing and commerce applications for cable companies and TV networks, developed the product on PayPal X, the payments platform PayPal opened to outside developers a year ago, and announced it with PayPal at the end of September. Now, it says, 2011 could be a big year for the technology. “We’re looking quickly to find interested cable companies, and there already are some,” Dan Levinson, head of marketing and public relations for 10-year-old FourthWall, tells Digital Transactions News. “It’s too new, we’re just out explaining what it is. But there’s a great deal of interest.”

PayPal makes no bones about the potential for television commerce. “TV is really what we see as the next big opportunity,” says Mark Wenger, group product manager at the San Jose, Calif.-based company. While he says “it’s challenging to put numbers” to that potential, he adds that “we see it as on par potentially with e-commerce or mobile.” Indeed, Wenger says PayPal views TV now as “the third screen” among devices for commerce, after PCs and handsets. PayPal, he says, expects to sign deals with still more companies developing TV-related services.

Helping to advance TV transaction technology is a joint venture among the cable operators, Canoe Ventures LLC, with which several companies, including PayPal and FourthWall, are working on various interactive services. At the same time, a key TV delivery platform called enhanced binary interchange format (EBIF) is rolling out across the country. Necessary for interactive technologies like the buy button, EBIF will be active in 20 million TV households by the end of the month, Levinson says, or about 20% of all homes receiving cable, satellite, or phone-company TV service. One of FourthWall’s lines of business is selling EBIF platforms to cable companies.

Levinson projects that TV companies will roll out EBIF to between 40 million and 50 million additional homes next year, though he says it’s impossible to say how many of these might activate the buy button. “This is a cool, huge opportunity,” he says. “We’ll just have to roll it out.”

Levinson says FourthWall developed the buy button after finding through research that consumers “would like their remotes to do more,” including functions such as voting on shows like “American Idol” and looking up listings in the Yellow Pages, besides payments. “There was overwhelming evidence people want to interact with their television sets,” says Levinson. The company began working with PayPal in part because of its “eBay on TV” application, which it had developed with PayPal’s parent company, eBay Inc.

There is no physical buy button, so TV remotes don’t have to be replaced. A TV show will display a message instructing the user which key to push on the remote to start a purchase. Once a user presses the key, another message will ask for confirmation, which the user gives by pressing the key again. With PayPal credentials stored, the seller can process payment and ship the goods. First-time users will be asked to enter their PayPal user name and password, and will receive a four-digit PIN they will use on each subsequent transaction.

PayPal says its deal isn’t exclusive, so FourthWall could contract with other payment processors if it chose to. That opens the possibility of direct credit and credit card payments as well as automated clearing house debits against users’ checking accounts.

Levinson won’t discuss specifics of FourthWall’s deal with PayPal, beyond saying both companies foresee a substantial revenue opportunity in processing TV transactions. “Everyone can do well from the deal,” he says. Wenger says a number of pricing scenarios are likely to evolve, if only because there are more parties to take care of, including cable operators and show producers. “You’re going to see transaction models that are going to vary dramatically,” he notes. “That still needs to play out. We’re comfortable with whatever direction it plays out.”