PayPal opens up mobile commerce offering to smaller retailers

With its Mobile Checkout announcement this week, PayPal is seeking to reach a broader range of retailers that want to sell goods and services through mobile phones. The new service is also designed to be easy for consumers to use.

PayPal, a subsidiary of eBay Inc., introduced PayPal Mobile in April 2006, but only big retailers could use that system, which required consumers to enter a five-digit text message code assigned to the retailer. PayPal had to approve any retailer interested in participating, then get the agreement of major mobile network operators to recognize the merchant’s five-digit code, says Damon Williams, manager of the PayPal developers program. “We can only do that for a limited number of merchants,” he says.

The new Mobile Checkout system announced at the eBay developers conference in Boston can be used by any retailer that creates a web site designed for viewing on mobile phones. “It opens up the platform so anyone can come and play in this space,” Williams says. “You don’t need to be a large company approved by us.”

Any of PayPal’s 143 million registered users can pay with Mobile Checkout after they register a four-digit PIN to be used for mobile transactions. When paying with Mobile Checkout, the consumer need only enter their cell phone number and PIN. “With Mobile Checkout we’re offering the experience that buyers get today when checking out on someone’s web site, and taking that experience to the mobile world,” Williams says.

Mobile Checkout provides a way for retailers to accept m-commerce payments without making deals with mobile carriers to have purchases added to consumers’ cell phone bills. Transactions not conducted through the carriers are called “off deck” in the mobile world, and the failure rate for such transactions exceeds 20% because of a variety of issues, including problems with verification and payment, says Levi Shapiro, a director of Telephia Inc., a mobile research firm. “We need to have extremely low failure rates that will encourage trials by consumers,” he says.

He says retailers selling on the mobile Internet, and not through portals of the mobile carriers, have to get out the word about their mobile sites and give consumers a reason to enter those URLs into their mobile phones. He says there have been some successes in selling without the support of the mobile telcos. “For example, roughly 30% of games are purchased off the carriers’ decks,” he says. Such major retailers as eBay, Amazon and Wal-Mart are likely to have an edge in m-commerce because consumers will be more likely to try out their mobile web sites, he says.

But the main challenge, Shapiro says, is to give consumers a reason to make purchases of something other than games and ringtones through their mobile phones. He says 28.9 million of the 232 million U.S. mobile phone users accessed the mobile Internet in March 2007, up 23% from a year earlier. But they mainly used it to send e-mail, or visited weather or entertainment sites. Of those 28.9 million, he says 2.9 million visited shopping or auction sites. He could not say how many made purchases.

“Right now, we see extremely low penetration rates,” Shapiro says. “Until we have 5% penetration we’re not at the tipping point in terms of changing consumer behavior.”