PayPal: U.S. Not Ready for Mobile-Pay

By Wolfe, Daniel | American Banker, March 25, 2008 | Go to article overview

PayPal: U.S. Not Ready for Mobile-Pay


Wolfe, Daniel, American Banker


As financial companies promote mobile banking services, and many lay the groundwork for mobile payments, PayPal Inc. says the U.S. market is not ready to broadly adopt the use of handheld devices to initiate transactions.

The San Jose company has offered a mobile person-to-person payments and shopping service since 2006, but to date it has found few takers beyond the online auction niche.

Scott Thompson, PayPal's recently promoted president, says he believes that mobile devices have a bright future when it comes to purchases and payments but that this future could take years to develop.

Mobile payments will probably first catch on abroad, he said, in countries where mobile technology is already ahead of that in the United States.

PayPal's mobile payments service "was a good offering, but it was early," he said in an interview last week. "I am absolutely convinced that mobile will take off outside the U.S. before it will happen inside the U.S."

Though PayPal's users are not ready for mobile payments now, he said, he is planning for the time when they will be, and the company is continuing to invest in those systems.

"We believe at some point - and I can't tell you whether it's three years, five years, or 10 years - but at some point, this will be a big method of payment for consumers around the world," he said. "You have to have a conviction against things that you know will be big over time. When we get it right, it will be big."

Mr. Thompson, who previously was PayPal's chief technology officer, took the top spot at the company in January when Meg Whitman, the chief executive of its parent eBay Inc., said she would step down, effective at the end of this month.

Rajiv Dutta, PayPal's previous president, was promoted then to head eBay's auction business.

Though PayPal is moving slowly in mobile payments, other companies are not.

Many financial companies that offer mobile banking services also offer, or plan soon to introduce, payments capabilities such as bill payment and fund transfers, and several credit card companies and issuers have tested handheld devices containing near field communication chips, which can make the handsets function as contactless payment cards.

A rival alternative payment service, Obopay Inc., is also promoting its mobile person-to-person transfer service. The Redwood City, Calif., company's original model was sending transfers to users' prepaid accounts, but the company said last week that it had modified its systems so that Obopay customers can use their devices to initiate payments to any U.S. bank account, through the automated clearing house network.

The change makes Obopay's phone service akin to PayPal's online person-to-person service, prompting some observers to ask whether PayPal plans to match Obopay's offering.

Neither Obopay nor PayPal will say how many people are using their mobile payment systems, and Nick Holland, a senior analyst at Aite Group LLC in Boston, said that this makes it hard to say whether either company has attracted much of a user base.

He said that Obopay's commitment to mobile payments could say more about its business strategy than its success.

"Obopay's entire business model is around mobile, so I guess they have to be vociferous about it. They don't have anything to fall back on," he said. "How are they actually doing? …

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