PayPal Mobilizes With Zong
Smartphones are finally paying off the promise of one-device connectivity and the mobile consumer has emerged. The next great mobility wave — paying on the go — is now upon us.
In May, Google announced Google Wallet, a product that essentially turns a Droid into a mobile payment device. At the time it was the newest addition to the emerging NFC-based technology that will eventually turn most mobile phones into payment devices. But in the U.S. market, the technology is lagging. In addition, consumers here may be hesitant to adopt it because of security concerns.
The leading online payment service PayPal potentially has a lot to lose if phone-based payment systems take off. In late June, PayPal reported on its blog that â€œweâ€™ve just raised our 2011 Mobile Total Payments Volume (TPV) projections to $3 billion. Mobile payments are growing at a rate we never could have imagined when we started processing them back in 2006 — in fact, this is the third time weâ€™ve had to update our mobile 2011 projections.â€
The growth of mobile payments is one of the key reasons PayPal owner eBay just purchased Zong for $240 million. Zong, which will become part of PayPal, approaches mobile payments in an entirely different way, by adding the payment for a mobile phone or computer-based purchase directly to the consumerâ€™s wireless bill. In effect, this avoids any of the technology issues related to phone-based payments.
PayPal has about 100 million active accounts. Zong has 250 carrier partners around the world. Putting the two together makes a lot of sense. Like chocolate and peanut butter, the melding of PayPal and Zong could be the technology version of a Reeseâ€™s Peanut Butter Cup.
Zong CEO and Founder David Marcus is clearly psyched about it:
â€œI am so excited by the unique combination of PayPalâ€™s 8 million merchants, brand power, risk management expertise, and financial stability, with Zongâ€™s Carrier DNA, its largest direct carrier payments network, product innovation, and best-in-class carrier billing technology. This industry first is going to allow us to scale what weâ€™ve built over the course of the past 3 years (and then some) in a massive way!â€
PayPal President Scott Thompson adds:
â€œZongâ€™s expertise in carrier billing means that it has the potential to reach the more than 4 billion people around the world who have mobile phones â€“ including people who donâ€™t have (or choose not to use) bank accounts or credit cards online. By combining Zong and PayPal, we believe we can offer more services to more customers, ultimately bringing even more value to how people pay and get paid.â€
Ryan Kim, writing for GigaOM before the acquisition was even announced, said PayPalâ€™s biggest future opportunity would be â€œmobile payments for offline goodsâ€ because they represent â€œmore than 90 percent of current transactions.â€ It looks like that is exactly what eBay was buying with the Zong acquisition. PayPal, long known as a payment service totally focused on eBay and other online transactions, needs to penetrate the offline world if it is to be taken seriously.
Zong should put some offline zing in PayPalâ€™s bottom line.