PayPal opens up the market for the unbanked
8 July 2011
EBay / PayPal has acquired Zong, one of the leading companies in mobile payments. What did they buy? First they bought relationships with hundreds of mobile network operators (MNOs) who trust Zong enough to allow them to bill the MNO's customer accounts. PayPal knows how to bill a bank account or a credit card, but doesn't have these relationships. This is huge. It suddenly makes the PayPal addressable market not just those people with bank accounts, but those people with mobile phones. Secondly, they bought relationships with lots of merchants, merchants who are willing to pay far more for payments than PayPal merchants. Merchants take up to 30% haircuts on Zong payments. These tend to be digital goods with very high margins. If PayPal can move any of these accounts to bank funding it is a big win. Finally they are buying lots of customers, but I don't believe that these customers were the reason PayPal bought the firm. PayPal has 100 million active accounts. What should happen with this new combined entity? PayPal will offer existing Zong customers a new funding mechanism right off the bat. I also expect PayPal will use their muscle to reduce the discount Zong/PayPal must accept from MNOs. Finally they will also work on creating a new mobile payment platform for the unbanked. It will have a higher interchange rate than the existing PayPal platform, but will open up a entirely new category of customers to mobile commerce. What do you think will happen?