PayPal in the Air! - A Look At PayPal Mobile

First Pass: PayPal in the Air

First, let's review what we know about PayPal Mobile so far - given that it hasn't actually been formally announced and we don't yet have the "official spin". Note that PayPal Mobile's page on the PayPal web site today says it's in "Limited Release" at this time for PayPal employees - and that a comprehensive PayPal Mobile FAQ is available. We'll start looking at the basics - and how the PayPal user agreement terms have been adjusted to apply to the mobile service.

A Walk Through The PayPal Mobile Policy

PayPal Mobile allows an existing PayPal user (in the US, UK or Canada) to link a mobile phone number to her PayPal account. Note that PayPal says that not all mobile numbers will work - the number must be registered to an "approved telephone carrier". PayPal also says it allows up to eight mobile phone numbers to be linked to a PayPal user's account but that a given mobile phone number can only be linked to a single PayPal account.

Once the mobile phone number has been authenticated as being in the hands of the user and the PayPal account has been linked, the PayPal user can send payments to others using their mobile phone numbers - either by sending either an SMS text message or by calling a PayPal IVR and key entering in the payment details.

PayPal Mobile also allows the user to: receive notifications of receipt of payments, access certain account details; and "carry out other payment related services as may be advised to you from time to time". The payments you send can be funded from your PayPal account balance, a confirmed bank account, credit or debit card or PayPal Buyer Credit as a funding source. You cannot send payments funded by PayPal gift certificates, eChecks or an unverified bank account.

PayPal's Mobile Policy (user agreement) makes the user responsible for the care of the phone, protecting the associated PIN (including not recording it or storing it in the mobile device), the costs charged by mobile carriers for handling SMS messages, etc. The policy also points out that PayPal's Buyer Protection Plan does not apply to payments using PayPal Mobile.

The Basics: Sending Money by Phone

When you use SMS-based text messaging to send money to someone, you send SMS messages to PayPal like the following:

• send 10.99 to 2125551981
• s 10.99 t 2125551981
• send 5 to name@domain.com
• s 5 t name@domain.com

You can optionally tell PayPal to share your address or phone information with the receiver.

• send 10.99 to 4150001234 share address
• send 10.99 to 3105551212 share phone

Before it actually completes that payment, PayPal calls you back on your mobile phone and requests you provide your PIN to confirm the payment. Once confirme by the sender, PayPal then sends the recipient instructions on how to claim the payment. Presumably (we've not yet verified this) the recipient doesn't need to be a PayPal user to receive the payment - but does need to be one to claim the funds (in other words, sign up as a PayPal user).

You can also check your PayPal account balance from your mobile phone by just sending PayPal the word "bal".

The Sizzle: Text To Buy

PayPal Mobile will also be supporting a new "Text To Buy" (TTB) service - and TTB turns out to be much more interesting to many of us at Glenbrook than just sending money to Mom (or son or daughter!). TTB envisions a new world where merchants promote specific items for sale - on TV, in a catalog, at a concert, or a live sporting event.

Imagine you're at the hot Strolling Bones concert at AT&T Park and they've got a superhot new live DVD available just for concert go'ers. But, since it's still being created (it's a live concert, remember?), you can't get it tonight. You just can't buy it at the stadium - as if you wanted to stand in lines to do so anyway.

But, tonight, through the magic of PayPal TTB, you can order that DVD - just now, when you're thinking you just have to have it. When Mick strutts his "Start Me Up" stuff up on stage and holds up the "TTB: DVD to 26637" sign (BONES on your keypad!) - and that same message flashes everywhere as you're leaving tonight, you'll know just what to do. Send that message from your PayPal-enrolled mobile phone, say yes to the confirmation phone call you receive within in a minute or two, and that superhot (well, by now, maybe it's semi-cool!) DVD will arrive in a day or two, shipped automatically to your PayPal address of record and billed to your PayPal account. What a use case! Rock 'n roll indeed!

While TTB obviously doesn't work for things like apparel where you have to select size, color, etc., it seems to work really well for the ginzu steak knife salesgirl on the home shopping channel, for Ron P. selling his rotisserie roasters on that late night informercial (does TTB support "only 8 low monthly payments of...?"), and maybe even for that shaggy SkyMall catalog in the back of the seat pocket in front of you in seat 11B (giving yet another new meaning to "PayPal in the Air"!). Even those endless looping ads you see in theaters waiting for the real show to begin could become new sales channels for merchants powered by PayPal TTB.

So, we're pretty excited about the potential for TTB. It's not perfect, it doesn't do everything, but it seems pretty ideal for the quick hit "I gotta have that" purchase on the run. Obviously, the devil's in the details and we'll see soon enough whether he's got horns or not.

What's TTB Got To Do With It?

By the way, one of our consumer marketing-saavy friends shares a comment about PayPal TTB:

"Couldn't they have called it "Ding-a-ling" or something like that - something that consumers might actually remember? How do you actually pronounce TTB anyway? Sounds like a very embarrassing noise when I try to say it!"

She wants to know "who's in charge of product naming at PayPal anyway?"

I guess we've just become less sensitive to these kinds of branding issues in payments. After all, we see folks talking about new payment product offerings using names like "credit push"!

In that light, TTB isn't all that bad, is it?

Making Money: What's PayPal Mobile's Business Model?

PayPal makes its money by giving away payment services to senders as a free service and charging recipients to receive the money. But, all recipients aren't treated equally - depending upon how PayPal views what kind of recipient they are: a personal users or a business. PayPal has three basic classes of accounts: Personal, Premier, and Business. Most small businesses operate as Premier accountholders while the Business account offers additional features for managing multiple employees accessing a business PayPal account, etc. For this discussion, we'll treat Premier and Business accounts the same - they're by and large business users, even if the business is a small one.

Personal recipients can receive funds without paying any fees up to a maximum (for US accounts) of $500 each month. So, for small value person to person payments, PayPal collects no fees when both sender and receiver are using only personal accounts and the two accounts are using the same currency (PayPal can make money from currency conversion fees if the two accounts are denominated in different currencies). Note also that personal recipients can't receive fees funded by a sender from a credit or debit card. If a sender does send them funds from a credit card, PayPal forces the user to upgrade from personal to business status and then collects fees from the sender - or requires the user to decline receiving the funds if they decide not to upgrade from a personal account.

One rationale for forcing this upgrade is purely financial - PayPal has to pay fees as a merchant on any credit or debit card funding transactions and it doesn't have the ability to recoup those fees from personal account receivers. The other rationale for forcing this upgrade is more subtle: ensuring PayPal stays in compliance with card association acceptance rules.

If the recipient is a business (all TTB receivers will almost certainly be classified as businesses), then PayPal charges fees for domestic payments ranging from 2.9% (plus 30 cents per transaction) down to 1.9% depending upon monthly transaction volume (fees charged for international payments are 3.9% to 2.9%). PayPal's Fee Schedule provides a summary of these fees.

So, bottom line, PayPal Mobile makes money from those payments where you're sending money to a business - with TTB being just one example of such a payment, but not when you're sending money to another personal account holder. PayPal also makes some incidental revenue from currency conversion where payments are being sent internationally.

Is That All There Is? What's Missing In PayPal Mobile

Any rudimentary analysis of the mobile payments space would differentiate between payments between remote parties and payments made face-to-face at a physical point of sale. At this time, PayPal Mobile appears to only address the remote party case - and says nothing about providing consumers more convenient payments at physical point-of-sale locations.

This isn't too surprising - as there's no infrastructure yet built to be able to accept those payments. Some suggest that as contactless RFID readers get deployed that mobile payments will emerge as more important than contactless card-based payments - but that's yet to be seen.

PayPal CEO Jeff Jordan is speaking to the wireless industry's CTIA conference in a few weeks. Presumably he's not going to talk about PayPal Mobile as we see it today but, rather, will talk about partnering opportunities between PayPal and the wireless carriers. Otherwise, why would he be there? These partnering efforts could involve addressing physical point-of-sale opportunities or, perhaps more likely in the near-term, involve a more elegant (and, to the consumer, convenient) "wallet" application on the phone - a step that does require the cooperation of the wireless carrier to get there (unlike basic SMS).

Other Thoughts and Reader Comments

Below are some other thoughts about PayPal Mobile from some of the partners at Glenbrook and as received from other Payments News readers and "friends of Glenbrook".

• Leaked to the blogging community and operational only for a few days, PayPal has become the 800 pound gorilla in mobile commerce. They have such a strong base to build from (verified users, registered cards, registered DDA accounts, verified ship-to addresses, hyper-advanced fraud screening, big customer support centers, etc) that players lacking these existing assets will have a tough time entering the mobile commerce space. I can't image a new mobile payments startup recreating this infrastructure. Other want-to-be players in the mobile payments market will face a similar challenge.
• P2P mobile payments sounds futuristic (and will get a lot of coverage in the mainstream media), but the Text to Buy (TTB) feature is the breakthrough idea. TTB is targeted squarely at convenience -- and convenience has proven to be the singular value proposition that has driven innovation in consumer payments over the last three decades.
• The P2P feature feels like a 'head fake'. Maybe it's a nifty feature that will help draw some teenagers into the service (the Joe Camel of payments?) but the real action is likely to be in the Text to Buy function.
• Longer term, maybe there is a play in international money transfer, given the high rates of cell phone ownership in some other countries, though I still wonder if PayPal makes it easy enough to convert these transfers into cash in the destination countries. Maybe there will be more clues about this when PayPal's Jeff Jordan keynotes at CTIA in a few weeks? Seems like it would require lots of carrier integration on both the send and receive sides because of the low incidence of FI account ownership in the target populations both here and abroad.
• PayPal's motives have to be incremental transactions and broader merchant acceptance. I don't see this driving additional new users to PayPal. Everyone that would even remotely consider using the this already has a PayPal account. But this (especially TTB) could unlock some new merchants for them.
• In addition to placing the TTB codes on billboards and in catalogs, I can also imagine manufacturers placing TTB codes directly on their products. When people need to order another one (for replacement) or order one just like their friend has, they can just pull out their phone, punch in the TTB product code, and have the same exact product sent to their house. Distributors could sell the initial product through traditional channels and with traditional payment mechanisms. Incremental sales (using TTB) would be driven back to the original manufacturer.
• TTB obviously builds on and extends everything PayPal has. It leverages the verified relationship, the default payment instrument, and the default ship-to-address. The one thing it adds (and this is a big one thing) is the TTB product code database. The TTB product code is conceptually similar to the Electronic Product Code (or EPC) that RFID advocates believe will one day be used as a universal product identifier. The TTB product code is not that advanced. It doesn't map to a unique instance of a product, only to a specific type of product available from a specific merchant. But it's here today and will be managed by PayPal.
• One can also see how the TTB concept might evolve over time. The TTB product code could be embedded in 2D barcode. Instead of keying in the product code, you could imagine that consumers would simply take a picture of a TTB bar code. This type of product barcoding is hugely popular in Japan already.

That's it for now! Please do post or email your comments!