Glenbrook’s Russ Jones is attending the PayPal X Platform developers conference in San Francisco. His post from Day 1 is here.
The second day of payments conferences usually give me a chance to step back, reflect on what was announced on the first day, and catch up with some people to better understand how things really work. While PayPal said that the three big themes for the conference were mobile, social, and local, they could just as easily said convenience, speed, and personalization. At least that’s what many of the the new products and solutions said to me.
PayPal Embedded Payments
With Embedded Payments, PayPal is simplifying the user experience down to the point where buyers just click and pay with a minimal amount of friction. The experience is “embedded” in the sense that the user doesn’t have to leave the sellers website to go sign-in, pick their payment method, and approve the purchase. Instead, when they click the “Pay with PayPal” button, a simplified PayPal light box hovers over the seller’s website, providing the consumer with a simple 2-click or even 1-click streamlined purchase experience.
The number of clicks varies because it can be personalized to be as light or heavy as the user wants. One consumer might personalize their use of PayPal so that they login once, but then never login again as long as their own the same computer. Even as they move across sites on the web. Another consumer might personalize their experience so that they are always prompted for login, even on repeat purchases from the same site.
PayPal Embedded Payments is build on top of Adaptive Payments. That means that sellers and app developers have access to send money features, chained payments, parallel payments, etc. The version of Embedded Payments available right now doesn’t yet support the handling of ship-to addresses, but PayPal says that’s coming.
For existing merchants, the streamlined user experience is also available through PayPal Express Checkout. So there is no need, strictly speaking, to switch to Adaptive Payments just to offer buyers a simplified experience.
PayPal refers to the simplified, on-site purchase experience as “inline checkout”. This user experience, however, is not completely new in online payments. Amazon Payments recently announced a similar user experience for its buyers in an enhanced version of Checkout by Amazon. Before that, PayPal had offered inline checkout for smartphone apps through its PayPal Mobile Library. The common thread through all these examples is the elimination of the clunky redirect step.
I wouldn’t be surprised to see other payment enablers move away from the traditional redirect model to the newer inline model. But it’s going to take some technical known-how, particularly to streamline repetitive logins out of the user experience. To make this work, PayPal is using its risk management expertise to adjust things on the fly as necessary. The consumer might be asked to re-authenticate depending on what they are buying, where they are buying it, and how much it costs.
As an aside, PayPal is also applying the simplified, inline user experience to Adaptive Accounts as well. When a third-party app uses Adaptive Accounts to create PayPal accounts, the users won’t have to leave the app and go to the PayPal site just to establish their PayPal password. They can just hover over the app in a light box to quickly claim their new account.
PayPal for Digital Goods
PayPal for Digital Goods bundles a bunch of underlying things together to create a solution for a specific set of customers. In this case the customers are online game providers and other digital goods merchants that want a super easy, cost-efficient impulse purchase capability. PayPal for Digital Goods combines PayPal Embedded Payments (described above) with PayPal’s traditional micropayments pricing option.
When using the micropayments fee schedule, PayPal charges sellers $0.05 + 5% per transaction — which works out to be more economical than the typical $0.30 + 2.9% pricing on any purchase under $12.00. The variable part of the traditional fee is more expensive, for sure, but the fixed portion drops from $0.30 to $0.05. And its the fixed portion that most sellers complain about in digital goods.
Because PayPal for Digital Good is based on Embedded Payments, and Embedded Payments are based on Adaptive Payments, online site sites can also use all of its capabilities. They can use subscriptions, make pre-authorized payments in support of a pay-as-you go model, or just sell virtual goods on an ala carte basis. While not positioned as a micropayments solution, it sort of walks and talks like one.
PayPal also claims that it has adjusted its risk capabilities to better reflect online fraud in the digital goods market. But it was interesting to me that they didn’t extend their buyer protection program to cover digital goods purchases. Instead, they offered developers at the conference a session on best practices for managing digital goods fraud. Not what I was hoping for, but okay.
PayPal says that they like virtual currencies, and that virtual currencies have their place in this world, but clearly the company would prefer sellers to embrace PayPal for Digital Goods for direct monetization. They went out of their way to say that buyers will spend more on digital goods when they don’t have to worry about having unused, seller-specific virtual points left over at the end of the day.
Even without these new capabilities, PayPal claims to be on track to handle $3 billion in digital goods transactions in 2010. Clearly, that number will be going up dramatically as this solution makes its way into the market in coming months.
