PayPal Looks Past Web to Find Its Future

PayPal Inc. is moving beyond the browser.

The company is one of the premier names in online shopping, but during a major conference last week in its hometown of San Jose, executives made little mention of traditional e-commerce in discussing the next phase of PayPal's evolution. Instead they spotlighted innovative electronic payment formats that do not involve the familiar trappings of a Web page or digital shopping cart.

"It's time to take the handcuffs off," Osama Bedier, PayPal's vice president of platform and emerging technology, said in a presentation Thursday. "This will make it easy to pay on other platforms, from mobile to gaming to set-top boxes and beyond."

The conference focused on how PayPal, a unit of eBay Inc., would open its platform to third-party software developers. Scott Thompson, PayPal's president, said the company hopes to tap into the creativity and energy of the entire payments industry by permitting outsiders to build applications that link to its core systems.

The goal, he said, is for PayPal to become the enabler for electronic products and services that otherwise might have no way to be monetized.

The open platform, Thompson said in a presentation, "puts the developer in the driver's seat."

PayPal is already in place with systems that do not use browsers.

Research In Motion Ltd. is using PayPal to process all purchases at the application store for users of its BlackBerry devices. Microsoft Corp. is also weaving PayPal into its coming Azure cloud computing platform. And Twitpay Inc., which offers a person-to-person payment service for users of Twitter Inc.'s microblogging service, is an early user of PayPal's new developer tools.

Features supported by these new tools include the ability to disburse a single payment to multiple recipients automatically, and to authorize and complete payments at separate times. The system is currently being tested by a a handful of companies, and should be opened to more by November.

Bruce Cundiff, a director of payments research and consulting for Javelin Strategy and Research, said PayPal is entering a space where there are often few options for developers other than building payments systems from scratch.

PayPal is going "anywhere the online channel reaches, so they're certainly not dependent on the browser," he said.

For products that do not conform to typical e-commerce models, the only clear option developers had before PayPal's announcement was the automated clearing house system, Cundiff said. ACH is cheap and ubiquitous, he said, but it's "not product-ized, not as people-oriented," he said.

Many popular online services, such as the namesake applications of Facebook Inc. and Twitter, have long prompted questions about how they might bring in revenue.

Cundiff said that despite their enormous user base, the payment question cannot go unanswered forever. "All these things are happening," he said, but "it is finite, in terms of running a business that isn't making money."

Aaron McPherson, a research manager for payments at IDC Financial Insights, said opening PayPal's platform to outsiders is a major change. "They've got to have an implementation that works with cloud computing and software-as-a-service and the new digital marketplace," he said. "It's a very important development."

PayPal has been through two major shifts in the past, McPherson said. In the first, when it shifted from a service designed to move money among personal digital assistants to one that helped people make payments at online auctions, PayPal was filling a void, and "really did unleash a lot of economic activity that wasn't otherwise happening," he said. "That's not what's happening here."

The current transition is more akin to the second major shift, when PayPal began tailoring its service to work through e-commerce sites besides eBay. In that transition, the company was expanding into a space that was already healthy, he said.

Though the market was eager for PayPal's service when it became available to eBay shoppers, moving into new electronic payments systems will not be as easy, McPherson said.

"The success of this strategy is going to be much more dependent on PayPal's ability to cut deals with the platform providers than it is to unleash innovation in the developers' community," he said.

Andrew Schmidt, a research director at TowerGroup Inc., an independent research unit of MasterCard Inc., said that "opening the payments platform really does position them to achieve much greater growth."

However, he acknowledged "there are a lot of hurdles."

Most notably, Web browsers are tried-and-true technology, but moving into new formats such as gaming consoles or set-top boxes will require developers to craft new interfaces.

Schmidt said PayPal's overall strategy is noteworthy. "If their model works the way they want it to, you don't need your wallet, you don't necessarily need your phone," he said. "You just need to hook into PayPal."