Using a cellphone to conduct a financial transaction is nothing new as carriers all over the world have implemented ways for their customers to pay for goods and services using their mobile device. However, customer adoption of such services is still a hit-or-miss affair.
In countries with weak financial systems, these mobile applications have taken off, and in many instances have become the main form of banking and cash transfers. But, in countries with more established banking systems these offerings are still trying to find their footing.
According to Juniper Research a recent report by the Center for Financial Services Innovation found more than 40 million households, or 106 million individuals, in the U.S. were considered “underbanked” or “unbanked.”
Enter PayPal, which after being founded in San Jose, Calif., in 1998 and being acquired by online auction house eBay Inc. in 2002, has been aggressively expanding its mobile application. The company, which claims more than 75 million active accounts in 190 markets and 19 currencies worldwide, is looking to persuade more of those users to try its mobile banking service.
Recent boost
PayPal first unveiled its mobile offering in 2006, but PayPal GM Eric Duprat said the recent influx of mobile application stores and increased capabilities of smartphones has been a perfect storm for greater traction of the service.
“The improvements in the user interface enabled by smartphones, and especially Apple’s iPhone is very encouraging and is driving greater traction of our service,” Duprat said.
The company has offered a client for Apple Inc.’s App store that PayPal Mobile said has seen more than 1.6 million downloads, and more recently launched a client for Google Inc.’s Android platform.
PayPal Mobile also scored a coup in April when Research In Motion Ltd. announced its application store would rely on PayPal Mobile for checkout capabilities. This capability is similar to its offering through parent company eBay that allows users to pay for items won through their PayPal accounts from their mobile device. The application completes a previous offering that allows users to manage their eBay activity from their mobile device.
And for parents sending kids off to school this fall, PayPal recently launched student account that allows a child to ask their parents for money through an SMS message, that if approved will automatically put the requested amount into their PayPal account and accompanying credit card.
“This really leverages the mobile space and SMS,” Duprat explained.
While mobile financial transactions have seen greater traction internationally, Duprat says the opportunity for success in the U.S. is encouraging.
“The mobile Web is working better in the U.S.,” Duprat said. “Carriers’ unlimited data packages are encouraging consumers to use their devices more. The U.S. may have been behind from a mobile technology standpoint, but it’s caught up when it comes to mobile commerce.”
Opening the model
PayPal Mobile is also set to jump on the open development bandwagon, with plans to unveil an open application to the development community that will allow them to embed the PayPal Mobile client into their applications.
“This is about enabling the entire ecosystem and allow developers to monetize their services,” Duprat said.
Of course, there is growing competition in the U.S. as traditional banking institutions are increasingly bringing out their own mobile applications that allow customers to manage their online accounts from their mobile device. Credit card companies are also bolstering their mobile capabilities, though Duprat noted that PayPal Mobile’s cost structure allows it to be more flexible in its fees and that it can undercut those of more traditional institutions.
“We are very flexible in this and in some instances can offer a micro-fee service that makes it more attractive to users,” Duprat said.
And as for security concerns over making financial transactions on a mobile device, Duprat explained that the environment could be even more secure than the company’s traditional online method.
“In the online world, once an account is set up a user never needs to expose their information and only need their user and password,” Duprat said. “For mobile we can make it even more secure by allowing a user to input only their cellphone number and a four-digit PIN. This reduces the exposure of sensitive information. PayPal has a very strong role to play here both in the ease of use and the consumer protection that we provide.”
