PayPal is about to get a mobile upgrade. That's because eBay just agreed to acquire a leading provider of mobile payment services to help augment its growing digital goods business. eBay will shell out $240 million for Zong.
Zong has a significant reach. The company has developed relationships with more than 250 mobile network operators around the world to enable mobile payments for digital goods and services in 21 languages and 45 countries. eBay figures Zong's tech and talent will complement PayPal's mobile payments offering.
"Commerce is changing. With mobile phones, we walk around with a mall in our pockets. PayPal helps to make money work better for customers in this new commerce reality -- no matter how they want to pay or what device they're using," said Scott Thompson, president of PayPal. "We believe that Zong will strengthen this value by helping us reach the more than four billion people who have mobile phones, giving them more choice and security when they pay."
PayPal launched PayPal for Digital Goods earlier this year. The new product that lets buyers pay in two clicks without leaving their gaming experience or content site. In 2010, PayPal processed $3.4 billion in payments for digital goods. With that in mind, Greg Sterling, principal analyst of Sterling Market Intelligence, said the Zong acquisition is complementary and consistent with what PayPal has been doing.
"Zong has carrier relationships all over the world. That's a major asset. Zong also gets PayPal into the digital goods space more deeply. It's mostly social games, like Farmville.
You want to advance your standing in the game, so you pay though Zong and it shows up on your carrier bill," Sterling said. "Those are small transactions sub-$10 and it's all done via SMS. You enter your phone number, you get an SMS, you confirm it and then the payment shows up on your carrier bill. That's their market."
Specifically, consumers enter their mobile phone numbers in the payment box. Zong claims it takes only a few seconds to verify that number and clear the payment on the customer 's existing wireless service account. The technology should come in handy, with PayPal expecting to transact more than $3 billion in mobile payments in 2011.
The Mobile Payment Landscape
As Sterling sees it, it makes sense for Zong to sell now. That's because over the long-term he expects the majority of mobile payments, at least stateside, to migrate from the carrier billing to a credit card-based digital wallet. Under age users without credit cards would still find these types of services valuable, but the mainstream consumer will move toward mobile wallets tied to credit cards, he predicted.
"There were a hand handful of these companies out there before all this mobile payment action started with Google and all the carriers and the credit card companies," Sterling said. "Most of these companies are going to be marginalized eventually because they just don't have the horsepower that a Google or a Visa or an Amex does."
PayPal reports that more than 8 million customers are making purchases on their mobile phones through its service, driving up to $10 million in mobile payments per day. PayPal offers Mobile Express Checkout for merchants, PayPal Mobile Payments Library for developers, PayPal payment apps for iPhone, Android , Nokia and Blackberry, and location-based shopping with Where.