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During its second quarter earnings call Wednesday night, online auction company eBay, Inc. recapped a busy quarter for its payment subsidiary PayPal, highlighting PayPal’s mobile payment growth. The company's CEO, John Donahoe, also announced eBay would be moving forward with trials for a PayPal mobile point-of-sale solution later this year, with a larger rollout planned for 2012.
Donahoe's comments confirmed the time frame for plans it announced earlier this year; namely, that PayPal is looking to compete directly with the likes of Google and Isis to provide a mobile payment method for the brick-and-mortar world. Donahoe was adamant that PayPal's solution would be better received by merchants than any solution pushing near field communications (NFC) products.
"(O)ur solution will work with any mobile device or mobile software platform or operating system," Donahoe said, adding that "merchants like that because it's going to enable them to help scale the PayPal solution across not just one store or one shop but across nationally all their stores and all their checkout lanes."
"(T)he people that are really going to drive this at the end of the day are going to be the merchants," Donahoe said. "And while I think there'll be experimentation with NFC, I don't think you're going to see widespread adoption of NFC in the large merchants for quite a while until there are standards."
Donahoe believes large retailers would resist any proprietary technology like NFC and he joked that a large merchant described NFC to him as "not for commerce."
Donahoe did not discuss PayPal's peer-to-peer money transfer product using NFC demoed last week by Laura Chambers, PayPal's senior director for mobile.
According to Donahoe, the company will start with a pilot program for its POS solution at a large national retailer later this year, but he would not say which retailer. He said by early next year the company would launch a larger rollout including up to 20 national retailers. Donahoe said the incremental opportunity from a mobile payment POS solution will take 3 to 5 years to realize.
PayPal has plenty of success in mobile commerce to leverage in launching a mobile payment product for brick-and-mortar merchants. During the call, Donahoe said an estimated 8 million people are currently using PayPal for mobile commerce and forecast mobile payment volume to exceed $3 billion for this year, an increase of 400 percent over 2010. He also noted the company can offer 100 million active accounts, most tied to two or more financial instruments, as well as impressive risk and fraud detection capabilities to offline merchants.
Donahoe sounded bullish about the company's ability to translate its online success into the offline retail world.
"(T)he mobile device is absolutely lowering the boundary or blurring the boundary between online and offline," Donahoe said, claiming internal analysis of consumer behavior indicated eBay's mobile application is actually used frequently in stores or at some point of the shopping cycle. He said merchants have reached out aggressively to eBay to bring PayPal into the point of sale.
Donahoe cited consumer electronics retailer Crutchfield as an example of how implementing PayPal's mobile products benefits merchants. Crutchfield implemented PayPal's Mobile Express Checkout in December and saw its online conversion rate jump almost 34 percent during a two week period in April. He also mentioned U.K. restaurant chain PizzaExpress, which started offering PayPal Mobile as an in-store payment method during Q2. Customers at Pizza Express' 370 locations can pay their checks at their tables via their iPhones.
The company's auction marketplace is benefitting from mobile commerce as well. Donahoe said the eBay mobile app has been downloaded more than 45 million times. The company is exploring ways for more small- and medium-sized retailers on eBay to incorporate the mobile channel and released a new product in Q2 called Fetch that allows retailers to upload their local inventory and automatically share it in real-time on eBay.
Two recent acquisitions pertaining to mobile commerce were briefly discussed by Donahoe. PayPal purchased WHERE, a location-based marketing and mobile commerce company, in April and acquired direct carrier biller Zong in early July. Donahoe said Zong bolstered PayPal's position as a leading payment method for digital goods and said WHERE's capabilities will be combined with PayPal Mobile giving consumers a way to pay at the point of sale with coupons and discounts integrated into their PayPal accounts.
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