July 14, 2011, 3:27 PM

PayPal sparks a mobile payments buzz

PayPal demonstrates person-to-person funds transfer by holding two Nexus S phones together.

Kevin Woodward

Senior Editor

Lead Photo

Users can complete a person to person transaction by holding their Nexus S phones together and waiting for a buzz.

PayPal this week demonstrated the ability to transfer money between two PayPal account holders simply by holding their smartphones next to each other.

The system works only with Samsung’s Nexus S phones, Android devices that contain Near Field Communication chips.  Near Field Communication is a wireless technology that enables devices to exchange information—including encrypted payment data—over a short distance. It can enable a consumer to pay for goods in a store by waving a smartphone with an NFC chip near an NFC-enabled terminal. To use the new person-to-person payment service, one PayPal user sends a request for a payment to another PayPal user from within a PayPal widget on their smartphone. A widget displays an application's most important or timely information at a glance, on a user's Home screen, says Google Inc. A prompt on the second user’s phone asks to confirm the person-to-person transfer. The two then are prompted to hold their phones together and wait for them to buzz. The buzz confirms the transfer. PayPal says the feature will be available later this summer.

PayPal’s ambition to move beyond e-commerce is no secret. It has a deal with point of sale terminal maker VeriFone Systems Inc. to include PayPal acceptance in VeriFone  POS devices. In May, PayPal bought mobile payments start-up Fig Card, a move many experts saw as PayPal moving closer to becoming a payment method consumers can use in bricks-and-mortar stores. These moves come at a time when some handset manufacturers are starting to put NFC chips into phones and a variety of players, from Google to wireless carriers, are initiating NFC tests, mainly geared to enabling consumers to pay with a wave of a mobile phone in a physical store.

PayPal’s person-to-person NFC demonstration is valuable, says Rick Oglesby, senior analyst at consulting firm Aite Group LLC. “It helps lay a foundation to use NFC in a broader sense beyond person to person,” Oglesby says. But, enabling NFC for person-to-person transactions is not where NFC’s potential lies, he says. The real potential is in the point of sale realm, he contends.

PayPal’s motive for enabling NFC person to person also may be to show it is keeping up with payment technology, says Todd Ablowitz, president of consulting firm Double Diamond Group LLC.

“Everyone’s going to be doing things with NFC,” Ablowitz says. “That’s not news.” The NFC capability shows that PayPal is very interested in NFC, he adds. “They’re wanting to show us they’re not going to be left behind,” he says.

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