Inside PayPal's Mobile Payments Initiative

PayPal now lets people pay -- and everyday restaurants and merchants accept payment -- using plain vanilla SMS text messaging.

A PayPal user with an active mobile phone account can send a payment to another PayPal account belong to either an individual or a merchant. PayPal Mobile payments are sent by sending a text message to 729725 ("PAYPAL"), and then keying in the amount and destination of the payment.

In an WebProNews.com interview, PayPal spokesperson Amanda Pires said, "Imagine the ability to split a lunch bill. I could just text you 20 dollars." She added, "Our customers told us this is something they want. Everyone's sending everyone else a dollar to try it out. It's addictive."

Retailers should note that this lets a bricks-and-mortar merchant associate their land-line number with their PayPal account. If you're a yoga studio in Denver, and a visitor wants to take a class from you and says "Do you take PayPal?"

"Sure," you say, "Just send the payment to 303-296-1234". While she's standing in front of you, your customer uses her cell phone to text PayPal to have the payment sent to your number. She receives a quick call to authorize the payment, and then, bingo! A minute later you receive an automated call informing you of the payment. (Just to make sure, you go online to check your bank account to see if the funds have been transferred. They have.)

No word yet on payment processing fees. PayPal recently announced a micropayment initiative which processes payments at a rate of 5 percent plus 5 cents per transaction for transactions less than $2. This initiative could save merchants 40 to 60 percent when compared to the industry's current payment processing rates of approximately 2 percent plus 20 to 30 cents per transaction. But, with the cost of handling one mobile-originated SMS, two mobile-terminated SMS, and one automated phone call requesting a PIN, methinks that adds up to more than 5 cents for the transaction. 

For the future of this initiative, look to PayPal's owner, eBay, which recently acquired IP phone service provider Skype. eBay CEO Meg Whitman recently indicated one way Skype might be integrated into its core business might be to add the ability of buyers and sellers to communicate in real time rather than via e-mail, helping to close complex deals in categories such as new cars and real estate. Further, the Text2Buy initiative may help address eBay’s “gray market” issues, in which a buyer and seller take their transaction offline in order to close the deal without incurring a fee to eBay.