Thursday, April 21, 2011
PayPal Inc. entered into the person-to-person (P2P) product market in April 2011 when Discover Financial Services launched its new Discover Money Messenger Service, a free application that allows card customers to transfer money on Discover.com or by using a smart phone.
The Discover-PayPal partnership was announced in October at PayPal's Innovate 2010 conference in San Francisco. The launch moves PayPal into competition with companies such as Visa Inc., American Express Co., and the privately held Square Inc. in the market offering new payment services to replace cash or checks.
"Discover cardmembers can start sending money to any person using only the recipient's email address or mobile phone number," PayPal Senior Director, Corporate Strategy Dan Schatt wrote in a recent blog discussing the launch. "The sender doesn't even need a PayPal account, and the recipient can open one up with just a few clicks if they don't already have one."
Schatt said he believes the future of the payments industry is driven by companies that offer people ways to send and receive money in any manner they choose, anywhere in the world.
The new service is free; customers receive up to 0.25 percent cash back for every transaction up to the first $3,000 received.
"Discover cardmembers who need to send money to a child in college, want to split a check at dinner or otherwise send money to another person can easily do so directly using any web connected device," Schatt noted in his blog. "The amount sent is charged to their Discover card account just like a purchase."
However, to receive money the recipient must register for a free PayPal account. When money is transferred, PayPal sends an email to notify the recipient that the money is being held for him or her in a PayPal account. Recipients must log in or register with PayPal to get their money. They can then transfer money to a bank or credit card from their PayPal account. PayPal does not charge for the transfer.
Money Messenger requires only a cell phone number or email address to transfer money from a smart phone to recipients in 60 countries. The new service uses PayPal's Adaptive Payments application program interface (API), a part of the PayPal X platform. The Adaptive Payments API allows developers to build customized payment services. PayPal is currently at work developing this technology to use with ATMs in a way that will allow ATMs, among other things, to handle remittances.
"Discover's work is a great example of how third-party developers can use PayPal X to create a new generation of payment options," Schatt said in a fall 2010 release. "PayPal X makes it possible for developers to monetize their great ideas by affording them security and connectivity through 27 financial networks and 15,000 local banks."
Market analysts see the Money Messenger launch as part of an industry move toward replacing cash transactions.
Industry analysts think Money Messenger will impact not only PayPal's future but also eBay's. Analysts note PayPal accounts for an estimated 20 percent of eBay's stock value. Because Money Messenger requires recipients to register with PayPal, the number of PayPal accounts and the frequency of payments processed per account should increase, which may increase eBay stock value. However, analysts also noted Money Messenger is designed to replace small cash payments, making it likely the average amount per PayPal transaction may decrease.
PayPal reportedly has contracts with a number of banks for its P2P services. It is expected to begin a Money Messenger program with USAA Bank later this year.
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