Saturday, March 14, 2009

Paypal Mobile: Is it a non-starter?

I was reading Carol Coye Benson's blog about cash going away. Such posts catch my attention and got me thinking. Why are we not using P2P (peer-to-peer) mobile payments when friends/colleagues have to pay each other (splitting a meal tab...)? A related question is why has Paypal not been able to make mobile payments more successful/ubiquitous? This question is topical, in light of Ebay's recent focus on Paypal and its mobile offering (2009 Analyst Day presentation).

First, a background of the offering. Paypal mobile has been around for over 2 years now. Paypal has over 70 million active users. The cost for individuals to make payments to each other is free (other than the cost of the SMS charged by the telco, if you are using SMS/text). Paypal does not charge individuals any fee to load their wallet from a DDA/bank account. They do not charge individuals any fee to withdraw the money back to their DDA/bank account. In summary, Paypal's mobile payment service is free to individuals to pay each other. It is reasonable to assume that most of Paypal's active users in the US have a mobile phone (see Tomi T Ahonen's post). However, I would assume that only single digit percentage of active users have registered for mobile payments.

I suspect we, as consumers, do not use Paypal mobile as we have not made the necessary shift in our lifestyle. There has been no incentive or education for us to incorporate Paypal Mobile into our lives. No major ecosystem player has encouraged the use of Paypal Mobile.

Why is Paypal not pushing their mobile offering? Paypal mobile is an opportunity for Paypal to move from the online payments space to the physical world. Peer-to-peer payments seems to be a low hanging fruit in Paypal's retail payments strategy. Or is it?

Let's look at why physical merchants (the kind Carol visited in Oregon) have not embraced Paypal mobile. The cost of acceptance seems to be the first place to look. For most small vendors, Paypal fees work out to about 3.5%. This is a pretty high cost.

Acquirer/ISO recruit merchants and help them in accepting [new forms of] electronic payments. Is the absence of such a partner in the Paypal Mobile ecosystem affecting adoption?

Are mobile payments still an oxymoron? Is Paypal not interested in physical retail payments (aka Paypal Mobile), as it sees lots more growth in the online world? Would love to hear your thoughts?


  1. Interesting post.

    I think that one reason why people are slow at adopting paypal mobile for P2P payments is that the money in paypal accounts can mainly be used on the web.

    People want access to their money through cash, credit and debit cards. Unless paypal accounts can be accessed seamlessly through POS terminals and ATMs, it will be hard to push for adopting paypal as a P2P payments mechanism for the masses.

    It can of course thrive in niches. For example, people who regularly buy items in online communities and those who regularly use SMS for downloading ring-tones etc.

  2. Thanks for your interest in this blog. PayPal does offer a standard debit card that works with the funds in the PayPal account. I have been using PayPal debit card for a few years now. Works well, with some nifty bells and whistle (addressing both security and convenience) that comes from tying a traditional payment card to web-aware payments platform.

    2010 may be the year when mobile payments and related P2P models become a tad more pervasive.