PayPal Mobile Launches with Five Merchants, More in ‘Pipleline’

PayPal Inc. today officially joined the race for mobile-phone transactions, announcing the commercial availability of its much-anticipated PayPal Mobile service. The product, word of which leaked two weeks ago while the San Jose, Calif.-based processor was testing it with its own employees and those of parent company eBay Inc., comes to market with three components: a person-to-person payment service, a service by which consumers can buy specific lines of merchandise being promoted by merchants, and a service by which individuals can make donations to charities. The merchant service, called Text to Buy, launches with five sellers onboard and many more to come, according to Kevin Dulsky, senior director of PayPal Mobile, who says he can't be more specific about names or the number of expected merchants. “I can tell you there's a full pipeline,” he says. “For the most part they are large consumer brands.” Bravo cable network, MTV Networks, NBA Store (a unit of NBA Media Ventures LLC), Twentieth Century Fox Home Entertainment Inc., and Universal Music Group have signed up so far for Text to Buy, which allows consumers to buy items merchants are promoting in advertisements or on posters or billboards by sending a text message that includes a short code and product identifier, both of which are included in the ad. This gives merchants for the first time a way of tracking buyer response to specific promotion placements in specific media, Dulsky says. Fox, for example, is using Text to Buy with its promotions for its “Walk the Line” DVDs about singer Johnny Cash. The other companies are hawking items ranging from CDs to shoes and other articles of clothing. While Text to Buy may well include broader ranges of products over time, it will most likely will remain tied to narrowly defined product promotions rather than evolve into a general mobile payment method for any merchandise offered by a merchant, Dulsky says. “Most [merchants] will still include it in advertising campaigns, but it will span more products,” he says. The advantage this offers merchants, he says, is that now they can take impulse purchases from consumers on the spot, at the time they see the ad or promotion. “Now [consumers] can act on that decision, just do it right then and there,” he says. “They don't have to go to a store or go online.” Dulsky refuses to be specific about merchant fees for Text to Buy transactions. He says transaction charges will carry a “similar structure” to that PayPal imposes on businesses, which pay anywhere from 1.9% plus 30 cents to 2.9% plus 30 cents per transaction. “All of our merchants are very pleased with the value proposition,” Dulsky says. The p-to-p component of PayPal Mobile allows individuals who are PayPal accountholders to pay each other by sending short-message service (SMS) transmissions from their handhelds. These transactions are free to both senders and receivers, leading some observers to speculate that PayPal is likely to emphasize the Text to Buy service while using the p-to-p service as a means to cement ties to accountholders and to attract new accounts (Digital Transactions News, March 24). PayPal currently claims 100 million accounts. Dulsky says it's too early to say how many accounts PayPal Mobile has signed up so far in its beta stage or how many the commercial product will attract. The ubiquity of mobile phones signaled to PayPal that the time is ripe for a mobile payments service, Dulsky says. “The vast majority of our accountholders have mobile phones,” he says. “It seemed like a natural extension to us.” He notes that in some ways the new service returns PayPal to its roots. The company started in 1998 with a payment service that allowed users to “beam” money to each other via Palm Pilot devices, though these depended on the short-range capabilities of infra-red transmission. PayPal Mobile's commercial launch 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 appears to be directly competitive with PayPal Mobile (Digital Transactions News, Dec. 21, 2005). 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. Text to Buy allows consumers to pay merchants similarly, using special short codes for the purpose that appear in the merchants' advertising.