PayPal Revamps Payment Service to Attract New Consumers

Working under the bold slogan, "the future of money," eBay's (EBAY) PayPal unit used its annual conference in San Francisco this week to unveil a new system for collecting payments on digital goods. The new system provides a quicker and more simple interface, which PayPal hopes will not only make purchasing easier for consumers, but, because it is easier, will increase the number of customers purchasing digital goods.

Under the new system customers can click a PayPal button which then loads a small browser window, asking for their login information. Or, if the customer is already logged in to PayPal, the button will produce only a small "live box" in a layer over their browser window where customers can review and confirm their purchase. For their part, PayPal takes a cut of 5% and 5 cents for every purchase under $12.

Currently purchases through PayPal are completed in a separate window and require a lengthy login and confirmation process compared to the new system. During the conference's keynote address, Sam Shrauger, PayPal's vice president of Global Product Strategy, said the new system will "make monetization as easy as possible."

Though they didn't reveal their actual revenues from digital goods, according to PayPal, they processed $2 billion in the items in 2009. In the same year, according to their parent company, eBay, Zynga, the game publisher famous for popular Facebook games including Farmville and Mafia Wars, became PayPal's second-largest merchant, after eBay itself.

During the opening keynote address, Osama Bedier, PayPal vice president of platform, mobile and new ventures, demonstrated the various uses for the new service. Beider invited Mary Beth Christie of the Financial Times on stage to show the now two-step process needed to purchase an article at FT.com. Bedier also showed off the service using a video clip from site Ooyala.com which now allows video providers to use PayPal to charge a small fee to viewers with only a short interruption in the video.

Bedier described the ease of their new product as "like dropping a quarter into an arcade machine." That gaming metaphor became more relevant when Facebook COO, Sheryl Sandberg, took the stage to show how PayPal's new interface can be used to buy Facebook credits to spend in the games, like Zynga's Farmville, that the site hosts. Sandberg described Facebook as a larger gaming platform than the three major consoles and, on the same day as the keynote, Bloomberg reported that the value of Zynga had surpassed that of traditional gaming juggernaut, Electronic Arts.

When asked about games, Bedier emphasized their importance and his belief that PayPal's new system for digital goods can help increase "conversion." Games, like the ones Zynga publishes, are free-to-play, meaning anyone can play without paying, but once in the game players are given the option to buy items or a bulk of in-game currency. Only a fraction of players currently do. In August, the market research company, NPD Group, reported only 10% of Zynga's players had spent money in their games. By making purchases faster and with a less intrusive interface, PayPal hopes to convert more of those non-paying players into paying customers.

As an example of how it could do that, PayPal invited Ronnie Neo, managing partner of Tyler Projects, a free-to-play game publisher based in Singapore, to San Francisco to show the new interface at use in his games. Neo said PayPal's new system, which should go live on his site in the next month, "has actually helped us out a lot."

As for any future gaming partners using PayPal's new system, Bedier would not give out specific names and could only say, "Almost everyone who is serious is working with us."