PayPal Buys Zong To Ensure Its Mobile-Payments Future

PayPal paid around $240 million to buy Zong, which it calls one of the "leading providers of payments through mobile carrier billing." The firm has relationships with more than 250 cellphone networks in 45 countries, and combined with PayPal's 100 million-ish user accounts, it could give PayPal the "potential to reach the more than 4 billion people around the world who have mobile phones," according to the company.

It's a bold move for PayPal. Because the system will mesh PayPal's powers of online sales to Zong's carrier-billing systems, it enables a whole new class of cellphone-based payments for millions of people who don't have credit cards, or even bank accounts--and who rely on "pay as you go" cell phone accounts.

That's a distinctly different solution to the growing field of NFC-enabled wireless payment systems, which typically blend high-tech devices like smartphones with existing payment structures (be it via payment processing partners like Verifone to actual credit card companies like Mastercard) to deliver an enhanced payment system. In the near future--possibly very near if Google Wallet takes off--these systems will enable wave-and-pay in stores, as well as integrating added features like in-store loyalty schemes and even direct wireless transmission of ads or small apps to the owner's phone.

What PayPal and Zong will be able to create is something simpler--an integrated system that replaces a credit card or even hard currency with a device as simple as a dumbphone. In certain markets in developing nations where dumbphones prevail, PayPal could enable advanced in-store purchasing using nothing more sophisticated than a specially coded SMS.

PayPal could, of course, scale Zong's technology into a more sophisticated system in the future, but it's already well aware of the upside. Writing about the acquisition on the PayPal blog, president Scott Thompson notes that the digital goods market is currently worth $20 billion, and is poised to "grow dramatically" because "anything that can move digitally will move digitally" from music to "movies, news, books, games..." Thompson plans to use Zong to bolster its digital-goods transactions, raising it from the impressive $3.4 billion in payments it cleared through its servers in 2010.

The move positions PayPal nicely in a market in which much bigger players like Google, the cellphone networks, and the credit card firms themselves are all jockeying for control.

Click here to read more about the latest developments in NFC technology.

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[Image via Flickr user Tijs]

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