By Brian Garrity
Forget about cash and credit cards. There's a new payment alternative for buying CDs, DVDs and other such entertainment pleasures -- your cell phone.
Online payment specialist PayPal, a unit of Internet auction giant eBay, has introduced PayPal Mobile to North America. The wireless version of its service enables users to buy goods and exchange money using their phones. Transactions are conducted by secure text message.
Music heavyweights Universal Music Group and MTV already are supporting the technology.
UMG will use PayPal Mobile to sell CDs by the Pussycat Dolls, Mary J. Blige and Daddy Yankee in direct-marketing initiatives. Rollout is imminent. And MTV plans to use it to sell basic merchandise from its Web store, including T-shirts and DVDs.
Other big-name media and entertainment brands, including 20th Century Fox Home Entertainment, Bravo and the NBA Store, hope to drive similar impulse buys by offering items for purchase via PayPal Mobile.
"With the overwhelming popularity of mobile phones, the time has never been better for the merging of e-commerce and wireless devices," PayPal president Jeff Jordan says.
To be sure, the opportunity is huge. PayPal claims more than 100 million members.
In addition to purchasing goods, PayPal members can send money to other individuals as well as to participating charities and merchants.
"PayPal Mobile is an important indicator of the broader changes now occurring in the mobile content/payments space," says Ed Kountz, senior financial services analyst with Jupiter Research.
NEW TO THE STATES
Sophisticated mobile phones can already be used to buy digital products, including music downloads, ringtones, pictures and videos. But the ability to use a phone as a digital wallet for buying physical goods is a new phenomenon in the United States.
PayPal's technology figures to be just one of a number of mobile payment applications.
Motorola is said to be targeting the market, as are startups Obopay and TextPayMe. And credit card companies, including Visa, are testing a contactless payment technology in phones called near field communication (NFC), which uses radio waves to transmit transaction data. In the NFC trials, participants use their phones to make purchases at a coffee shop, download a movie trailer in a DVD store, shop from their home TV and buy concert tickets from a smart poster.
"You're going to start to see retailers embrace (mobile) as another payment option," Universal Music Mobile vice president and general manager Rio Caraeff says.
Analysts say mobile payment technology creates new sales opportunities for the music business, including CD pre-orders, ticketing and concert merchandise.
New mobile payment services are expected to expand the number of merchants selling digital products for use on phones. In a move unrelated to PayPal Mobile, UMG in May is expected to launch a new premium short-message service that will allow consumers to use text-message codes to buy ringtones, wallpapers and videos for their phones. Billing will be handled by participating carriers including Cingular, Sprint and T-Mobile.
Analysts are divided over what the music business should expect from these new mobile payment options.
"To the extent that digital money doesn't feel like real money, it may increase spontaneous purchasing," says Aram Sinnreich, an analyst with Los Angeles-based research firm Radar Research. Sinnreich argues that "carriers have a very simple and transparent billing relationship with consumers, and adding a second billing platform only confuses things."
Kountz cautions that it will take 12 to 18 months to see how much traction services like PayPal Mobile can gain in North America. "User habits and awareness don't shift overnight."
Copyright 2006 Reuters Limited.
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