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PayPal Eyeing Mobile Micropayments?

Online payment provider PayPal's move to expand its mobile payment service division could be another sign that micropayments are gaining traction in the mobile market, analysts told internetnews.com.

The payment subsidiary of eBay confirmed that it is looking to hire a product manager for a possible expansion of its mobile payments, which it posted on Craigslist. The company's move comes at a time mobile devices and content are maturing, as are high-speed data networks.

"We are in the exploratory stages," PayPal spokesperson Amanda Pires told internetnews.com. "We have not announced our intention because there is no official program. When we look at a new market or product, we want to do research on the many different aspects. We do have a Web-enabled product, but so far it hasn't been a big focus for PayPal."

Pires characterized PayPal's current mobile payment service for Web-enabled phones, which uses the WAP-protocol , as outdated.

Pires could not provide any statistics on how many people use PayPal's Mobile Payment service. She said the division has been spending more of its time integrating the system with eBay, expanding its international markets and supporting merchant services for online storefronts. An eBay spokesperson was not immediately available to comment on a similar exploration by the company.

"There are so many directions that we can take and it makes a lot of sense, but we need to focus on the biggest need in our market and where we can get the greatest return. This [Mobile Payments exploration] is interesting but there are a lot of interesting avenues out there," Pires said.

Interesting is one thing. Profitable is another. The ability to conduct so-called "micro-transactions" via cellular phones -- buying from a vending machine, for example -- has long been touted in the mobile industry but hasn't caught on in U.S. and North American markets.

According to TowerGroup, in 2003, the total value of Internet micropayment transactions in the US was $1.9 billion -- driven primarily by media and Internet publishing services, and digital music (e.g., iTunes), and other audio services. Mobile micropayments sales in the US (such as for content like ring tones) accounted for about $15 million in the same time frame.

However, Ed Kountz, senior analyst in the Emerging Technology Solutions practice at TowerGroup, said he expects to see more rapid and tangible growth in the sector, thanks to a few trends.

"As technology has advanced so have customer expectations and networks, and these factors are setting the stage for expanded micropayments growth across the mobile, Internet and physical channels," Kountz said in a recent research report. By 2009, TowerGroup expects the total market for Internet and mobile micropayments in the U.S. to increase 23 percent (at a compound annual growth rate) to $11.5 billion in revenues, up from just over $2 billion in 2003.

"If PayPal and eBay can bring reliable technologies and privacy-protection practices to mobile payments, their respective brands could help grow this still-fledgling business considerably in this region of the world," Michael Dortch, a principal business analyst with Robert Frances Group, told internetnews.com. "It's also not hard to envision advertising and marketing campaigns and contests that include limited-time 'mini-auctions' drawing large numbers of cellular phone, PDA, and smartphone users into bidding competitions, analogous to the voting that takes place via such devices on television shows such as 'American Idol.'"

Dortch said the challenges with mobile payments have always been the same: security, and profitability. But despite the recent outage problems with the PayPal Web site, he believes a combination of PayPal and eBay could spark greater use of mobile payment technologies.

"[You could have] businesspeople placing or changing orders while traveling without having to get back to their networked PCs or reach their purchasing or accounts payable departments outside of traditional office hours," he said.

But aligning itself with just the eBay properties may not be the only area where PayPal could flourish. Whoever would lead the charge is expected to turn a strategy into a phased roadmap of product delivery.

Bruce Cundiff, analyst for Jupiter Research (which is owned by the same parent company of this Web site) said PayPal is looking to work directly with the mobile carriers by assisting them in defining their payments strategy and integrating PayPal into all payments via mobile devices. He points to three main areas of interest for PayPal -- mobile content, e-commerce and proximity payments -- with mobile content being the one that provides the most immediate-term gains.

"Mobile content and gaming is a sweet spot for PayPal. They have dabbled in 'micro-transactions' before with online music, so they have experience in making small value transactions profitable for themselves, and they could likely pass that profitability on in part to the telcos," Cundiff said.

But telcos don't necessarily want to be tied down to the traditional payment networks, and have been reticent to invest heavily in startup payment schemes, Cundiff added.

"I see some competitive pressures coming from traditional players such as Visa and Master Card, as well as smaller alternative payment mechanisms and platforms focused on small value transactions," Cundiff said. "PayPal has enough clout to work closely with the telcos and develop products that benefit all involved. They are always on the lookout for the next area of account holder and transaction volume growth, and think that this might be one of them."