Bill Zhang

Friday, April 07, 2006

PayPal Goes Mobile

The online payment system PayPal officially announced “PayPal Mobile,” the company’s text-based cell phone service, at a wireless convention Thursday.

PayPal’s interest in a cell phone service has been anticipated by industry watchers, as the U.S. wireless industry tests the idea of one day turning the cell phone into an “m-wallet” to replace cash, credit cards, and even apartment keys.

While U.S. consumers and wireless operators have been eyeing the m-wallet and pilot-testing various systems, Japanese wireless operators like NTT DoCoMo have already run successful services that use the phone for a credit card, ATM card, apartment key, and train ticket.

For now, PayPal’s cell phone service is based on text messaging that users can employ to “Text to Buy” products like CDs, DVDs, shoes, and apparel from stores that have signed up for the service.

PayPal, owned by the Internet auction company eBay, has already signed on 20th Century Fox Home Entertainment, Bravo, MTV, and the NBA Store.

Shares of eBay fell $0.03 to $38.50 in recent trading.

San Jose, California-based PayPal will also enable users to “Text to Give” to charities such as Amnesty International, Starlight Starbright, and UNICEF.

PayPal Mobile will also extend PayPal’s current online payment service to the cell phone, leveraging PayPal’s customer base of 100 million accounts.

"With the overwhelming popularity of mobile phones, the time has never been better for the merging of e-commerce and wireless devices," said PayPal President Jeff Jordan in a statement.

PayPal Mobile will face competition from startups such as Obopay, which has raised money from VC backers Redpoint Ventures, Onset Ventures, and Richmond Capital (see Obopay Gets $10M for M-Wallet).

Secure Cell Phones
With the emergence of the cell phone as a wallet, companies will spend significant time and expenses on assuring customers their finances will be safe on mobiles.

Mr. Jordan pointed out that eBay and PayPal’s already established customer relationships would give the company an edge in the mobile payment industry, which relies on the security of a customer’s finances.

“Our customers have already entrusted their personal and financial information to PayPal,” said Mr. Jordan. “Now, making payments is as easy as sending a text message anytime, from anywhere, for the millions of customers that prefer to use PayPal.”

Users register their cell phone numbers with PayPal, and when purchasing items from the PayPal Mobile service, PayPal will call the customer back to confirm the purchase.

PayPal said it will store customer information on secure servers, not on the mobile telephone, so even if the phone is lost or stolen, the user’s PayPal account remains secure.

On Wednesday, NTT DoCoMo CEO Masao Nakamura said in a presentation that 10 million subscribers had mobile-wallet-enabled phones, 30 percent of whom are active users, and 60,000 stores are participating.

Mr. Nakamura dazzled conference goers at CTIA, the largest wireless convention in the United States, with a video of “future service developments.”

The video showed a subscriber paying for apartment utilities in a building lobby with a cell phone, and using a motion-sensor-based wireless network to automatically unlock doors.

“We showed the demo of the [motion sensor] service to Prime Minister Koizumi and he loved it,” said Mr. Nakamura.

NTT DoCoMo shares rose $0.02 to $15.01 in recent trading.

But the U.S. is just starting to test text-based cellular commerce systems like PayPal’s, and so far the infrastructure for a mobile wallet world is far from complete in the U.S.

Such a system needs chips in cell phones, ubiquitous wireless networks, and the cooperation of stores, financial services, customers, and wireless operators.

Companies like semiconductor maker Philips and the financial service company Visa found some success with a trial of a technology called NFC (near field communications) for cell phones.

NFC is a short-range wireless technology of several centimeters, which is already being used with “touchless credit cards.” The cards don’t have to be swiped through a magnetic stripe reader, just placed within centimeters of the scanner.

Philips and Visa said a study based in Atlanta included 20 participants who ordered coffee, Wi-Fi services, and movie tickets with an NFC-embedded cell phone.