perhaps more suited for the cych thread, but a little more
November 15, 1999
Paypal Electronic Plan May Be On the Money in Years to Come
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
Your mobile phone could soon replace your wallet.
Thanks to a new Web-based payment service called Paypal, consumers can soon beam money via electronic-mail, mobile phones or Web-enabled pocket organizers. Unlike current online-payment systems that require users to know bank-account numbers of payment recipients, Paypal users only need an e-mail address or a phone number to beam a payment.
For consumers, the new service means they can pay money instantly, whether it's at an auction, a coffee shop or to a child in college simply by punching in an e-mail address or dialing a mobile-phone number. Similarly, merchants will be able to receive money at all times without having to be linked to a credit-card service.
More Services
Mobile phones are increasingly becoming more than just voice-communication devices, as operators and other companies are offering a growing number of wireless services. Spurred by the development of Wireless Application Protocol -- a wireless communication technology standard that allows mobile phones to access the Internet and other wireless technologies -- banks in high-tech Scandinavia are already offering customers the ability to check account balances and stock quotes on their mobile phones. Meanwhile, Nordic insurers allow clients to sign up for travel insurance via their mobile phones, and soon, interactive city maps will be available for wireless devices there.
The next generation of mobile devices from Sweden's Telefon AB L.M. Ericsson and Nokia Corp. will feature Web-equipped electronic organizers and ever-larger screens; within three years, wireless video conferencing will hit the market and may be widespread in technologically advanced Scandinavia in less than five years. Nokia already features futuristic mobile devices with full-color screens and minicameras during corporate presentations. Both equipment makers and service providers hope that mobile commerce, or m-commerce, will take off. "Mobile phones provide a direct channel from a merchant to a consumer," says Marko Orenius, spokesman for Finnish operator Sonera Corp., a pioneer in WAP services and the country's fourth-largest billing center. "You no longer have to wait for a consumer to switch on his PC in order to reach him," he says.
Some analysts aren't as upbeat about the potential of m-commerce because mobile phones are controlled by consumers and don't allow for advertising the way the PCs do. "No matter how big the phone screens get, you'll never see a banner ad the way you do on your PC," says Evan Neufeld, an analyst with Jupiter in London, who adds, "Joe Blow is many moons away from buying products over his phone."
Drawing Interest
Paypal's developer, Nokia-funded Silicon Valley startup Confinity Inc., is aiming to be at the heart of both e-commerce and m-commerce. Confinity says Paypal users may at first be hesitant to use the system for more than small payments, but its use could grow rapidly if it proves successful initially. It says that a year ago, online share traders cautiously traded small parts of their portfolio over the Web, but today, many investors have their entire portfolio in online accounts.
Confinity's founders are betting they can make money with Paypal by drawing interest over money payments that haven't yet been claimed. While merchants usually cash in on payments and checks as soon as possible, many individual consumers aren't as quick. "We are counting on a certain stickiness of the money," says Peter Thiel, Confinity's chief executive officer, who adds, "People don't pick up money until they need it."
Whether Paypal will become a hit remains a question. The Internet is littered with online-payment systems that didn't appeal to consumers. Credit cards and debit cards remain the preferred way of payment for online consumers. Security of transactions remains a big issue for consumers, particularly in Europe, where people are reluctant to give out their credit-card number to begin with. "Security is a big challenge," says Mr. Neufeld, adding, "You can have a great product but you have to convince people that it's secure. People first have to trust you."
Confinity claims its payment system is more secure than checks and other paper-based payment methods, which can be forged or stolen. Security of the e-mail payments is hinging on the workings of a central server, through which all Paypal payment transactions are made. Behind Paypal is a server that processes payment transactions and connects to the digital infrastructure of financial institutions around the world. The server is secured by cutting-edge cryptography developed at Stanford University and other than credit-card payments, all security is concentrated at one point. Moreover, Paypal is relying on common-sense security. "The system is transparent," says Mr. Thiel, adding, "Every user is registered by name and each transaction is traceable."
One potential snag: The underlying technology of the system needs to be able to handle a massive number of transactions, which need to be routed and rerouted at the click of a button. "There are significant scalability questions," says Mr. Thiel, adding, "But the server is equipped for hundreds of thousands of simultaneous transactions and we don't expect any problems. People can try it first with small amounts of money and see that it will work."
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
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