As smartphone proliferation exploded over the last year, the mobile payment space has also become a hot market. Mobile shopping in the US more than tripled from 2008 to 2009, according to ABI Research. With new offerings from groups like Square and Intuit joining credit card companies with new offerings, PayPal is working hard to maintain its edge in the digital payments space.
Mobile transactions increased from nearly $25 million in 2008 to $141 million in 2009 at PayPal. This year, the company is even more serious about mobile.
Bill Zielke, PayPal's senior director of North America merchant marketing, is responsible for the development and marketing of PayPal's product strategies. I spoke with Zielke about how PayPal works with businesses online and in mobile, as well as what new offerings PayPal has coming down the pipeline.
What does PayPal offer businesses they can't get elsewhere?
PayPal’s value proposition really spans both the larger merchants in the marketplace — the Armanis, the Walmarts, the Blueflys of the world, all the way down to merchants that are frankly just getting started on EBay selling goods and services initially out of their houses. PayPal enables merchants to get paid and to have a really seamless checkout experience that’s specifically designed for the web. Credit cards as a payment source were really never engineered for an e-commerce environment or a digital environment. They were engineered for the offline world, which is why they have the magnetic stripe.
At PayPal, we've engineered a best-in-class payment option for the e-commerce marketplace and now the mobile marketplace. That enables merchants, large or small, to get paid. We’ve taken it a step further by making that payment experience seamless as well as safe. We let merchants get up and running quickly with a fast and safe and secure payment solution that was really engineered for the web.
Over the last year the digital payment space has evolved very rapidly. Are traditional retailers finally understanding that digital matters?
I would say the way you characterize it is exactly accurate. It’s not only rapidly adopted, I would say it has exploded. Despite what’s happening in the economy, the web has been a channel that has continued to grow, if not in double digits, at a very high single digit growth rate. We don’t see that changing. In fact, web sales were stronger this year than they were last year. Certainly that pace of growth has changed. It’s getting bigger and broader.
In terms of e-commerce adoption of PayPal, we’re north of the 50% mark. The total e-commerce market is roughly a $200 billion marketplace, and we’ve penetrated merchants that represent over half of that volume.
So the explosive growth you’re referring to is now being taken by retailers, and they’re taking action on it and installing payment options like PayPal and others. But principally, we’re passed that halfway point, and we’re seeing a lot of merchants adopt. They’re doing so because they’re seeing value.
What is PayPal's approach to mobile?
Smartphone proliferation is outpacing anything we’ve seen, be it the TV, radio, or even the iPod. PayPal’s response to that has been to build a payment application that’s designed for the unique needs of the smartphone.
If everybody’s using phones, there’s a lot of people shopping, but there’s not a lot of people buying. What we aim to do with our mobile product is build a payment solution that works for the unique needs of the iPhone and the Android and the Blackberry. We’ve taken our product which merchants use on the web — we call it the Express Checkout product — and we’ve modified it to work in the unique environment of the iPhone as well as the Blackberry and the Android.
The whole point here is that consumers making purchases via smartphones is an area where we’re seeing tremendous, if not explosive growth.
How much will cost be a factor in the success of mobile payment proucts?
Having been around payments my entire career — about 15-20 years — there always seems to be a large thrust of companies trying to come up with a new payment solution. It’s not easy. Providing a terrific experience for the consumer is not an easy challenge. Things that PayPal does that are unique are that we provide a very seamless and very safe payment experience. That’s very hard to replicate.
A lot of organizations are going to see the opportunity in mobile and really try and come after it. I don’t think it’ll boil down to price. The checkout experience is one merchants take very, very seriously. The best way to find that out is go ask Ralph Lauren if they’re gong to change their checkout experience during the holiday, where they generate 50-60% of their total sales for the year. It’s a very, very serious thing and it’s a very, very important IT investment.
Where are you expecting the most growth over the next year?
Mobile e-commerce is probably going to be one of the larger, if not the largest growth area. We plan on exiting this year with almost $500 million in processing volume. If you look at those merchants that are in " Internet Retailer's" Top 500 Merchants Guide, our largest growth segment in the large merchants’ space is going to be apparel department stores and luxury brands. They’ve been the last to adopt, but they are doing so right now at an impressive rate. That, plus mobile, are probably going to be our two top areas in the merchant arena.
What are some of those brands planning for the holiday season? How is it different from last year?
We're working with a lot of big luxury brands now: Ralph Lauren, Bluefly, Hot Look, Armani, Abercrombie, Aeropostale. The reason they’ve adopted us particularly in this economy is we are a source of incremental sales. We bring new customers to merchants. When you start talking about growth, you start talking about the holiday season, where they generate 50-60% of their sales during that period. Any sources of growth creates an advantage for them.
Their strategy this holiday season is to offer an alternative like PayPal to their customer base, so they can attract more incremental buyers. I would say that’s principally their strategy. You’ll see aggressive messaging during the holidays of payment options like PayPal.
Is there anything else in the pipeline for PayPal?
Certainly digital goods is coming down the pike in terms of a new product or a revised product offering from PayPal. We are also hosting an Innovate conference which is our second effort to bring the development community together. Almost a year ago, we took our code base, our PayPal payment code base and packaged it up in the form of an API and opened it up to the marketplace. We did so at a the conference. It’s one of the largest gatherings of developers in the Silicon Valley. There will be announcements for new technology and new capabilities the developer community and the merchant community can advantage of. That’s probably gonna be some pretty big news.
If you look at a lot of the statistics for where web growth has been occurring predominantly for retail, it’s female buyers who are very affluent and have high discretionary income. One of our hypotheses is that because of PayPal’s base of 50 million consumers, and because it contains such a large percentage of these big-spending females, retailers are really seeing us as a very efficient marketing tool to drive their sales. That is something we're very excited about.