PayPal Goes Mobile With Cell Phone Payment System

PayPal is going mobile.

The online payments giant is gearing up to launch a service that would allow its customers to make purchases or money transfers using simple text messaging on their mobile phones.

Dubbed PayPal Mobile, the service is currently only available to the eBay (Nasdaq: EBAY) unit's employees for a limited trial release and does not work with all mobile operators.

PayPal customers can buy items like CDs, DVDs, books, electronics and accessories. PayPal has not yet disclosed its bricks-and-mortar partners.

PayPal was not immediately available for comment. Apprently, however, the mobile service is still in the early experimental phases.

"This is very elementary right now. PayPal is testing it out from the peer-to-peer channel to see if it will work and gain consumer traction," Sucharita Mulpuru, senior analyst at Forrester Research, told the E-Commerce Times.

Addressing Security Concerns

One of the first concerns about any new technological advance -- especially one that transfers money -- is security. PayPal has outlined a security plan for the new service that is based on a PIN system.

Mobile phone users activate their phone for PayPal Mobile by creating a unique PIN. The activation is complete only after PayPal calls the user back and the user enters that PIN. This method confirms that the customer actually owns the phone he or she has activated, PayPal said.

Each mobile transaction is also PIN-protected to offer customers security if their phones are lost or stolen. Customers are required to confirm payment details for every transaction they make. If a person doesn't confirm when PayPal calls back, no money is sent.

Text to Buy

"Buy it when you see it. Where you see 'Text to Buy' -- on a poster, in a magazine, at an event -- just order the item securely by text message," PayPal says in the promotional materials on its Web site.

For example, customers might see: "To order this DVD, text 'DVD to 63336.'" Immediately after the customer does this, PayPal calls the customer back to confirm the order and asks the person to enter his/her PayPal Mobile PIN. Once the customer confirms, the item is shipped to the home address listed on the user's PayPal account.

Just like the traditional PayPal service, PayPal Mobile makes it free to send money, though wireless carriers may charge fees for receiving text messages. If a call is dropped before payment details are complete, the user can send it again without worrying about paying twice, PayPal said. No money is sent until the user fully confirms.

Long Time Coming

PayPal's Web site has a link to Text to Buy participating retailers, but there are currently no retailers listed, leading analysts to believe that full retailer functionality may be a long time coming.

"Going into a store and paying with a cell phone is much further down the road because there are so few retailers that are currently integrated with any type of mobile payment system in the U.S.," Mulpuru said.

Facing Competitive Pressures

Could PayPal be preparing this service in light of competitive pressure from Google (Nasdaq: GOOG), GreenZap and others in this space? It is indeed a "tough competitive landscape," Mulpuru noted.

Just like any business with slowing growth, PayPal may be looking to come up with new products and services to maintain value and hold onto customer interest.

"PayPal has been throwing a lot of things against the wall, as have eBay and Google and Amazon (Nasdaq: AMZN). These companies are fortunate to be entrepreneurial enough to allow pretty rapid deployment of these products. PayPal will see if this sticks. If it does, then I am sure the company will move forward with this and try to figure out a way to monetize it," Mulpuru concluded.