Not many companies are doubling their business estimates for the next year, but PayPal has done just that by projecting a 100% upside for mobile payments. Wednesday it pushed the gas even harder by switching on near-field communication for mobile payments.
The new system was demonstrated at the MobileBeat 2011 conference in San Francisco by Laura Chambers, PayPal's senior director of mobile. An NFC Android widget will be used to transfer money between PayPal accounts by tapping together two Nexus S smartphones (the Nexus S is U.S.'s only NFC-equipped phone running Google Inc.'s Android software). Chambers told attendees the widget should be available later this summer.
PayPal, a unit of eBay Inc., is using Google's Android NFC software development kit, which should make it easy for PayPal to make its NFC technology compatible with new NFC phones that come out over the next year.
The cash transfers are secured by PayPal's payments specification. That means the transaction is executed by an encrypted token, and doesn't touch the NFC secure element, which can store card data and other sensitive information.
PayPal has offered mobile payments since 2006 via apps and text-message systems, but the ramifications of adding NFC at PayPal are huge, opening up the possibility of the company expanding deeper into mobile payments and treading into added services. This would make PayPal an even more formidable competitor to banks.
PayPal today is pushing mobile technology on a variety of fronts. eBay recently acquired Zong, a tech firm that allows users to charge digital goods to wireless phone bills. PayPal's moves also pose a threat to other major efforts to develop mobile payments, most notably clearXchange, a payments venture of Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. that will also heavily rely on mobile technology. By offering NFC, which adds another way to use mobile payments as a gateway to other services, PayPal can eat away at some of the touted advantages of clearXchange, such as pre-existing financial relationships.
PayPal didn't immediately answer a request for comment on its NFC deployment and how it affects the company's plans to expand into other mobile services. But in an interview last week on broader mobile trends at PayPal and other firms, Dan Schatt, general manager of financial innovation at PayPal, said, "The mobile transaction can be monetized in a lot of ways. Every single transaction [results] in the recipient getting an email from someone … You have more of an opportunity to get in front of a consumer [for cross selling] than ever before."
Commenting on PayPal's potential expansion into added financial services, Aite senior analyst Rick Oglesby said, "Let's assume PayPal gets accepted at the [point of sale], and it has [person-to-person payments] and the Web. Consumers could do a direct deposit into a PayPal account, so banks lose their [pre-existing account] advantage."
But Beth Robertson, director of payments research for Javelin, said PayPal does have some more work to do if it plans to offer mobile payments at the point of sale. The new NFC rollout "shows that they are working with technology [NFC] that can be brought to POS, but PayPal does not have a strong POS market position presently and that application, as described, does not appear to support most POS needs."
