Keep on Chasin’ that Pap– Electronic Currency

After eBay announced earnings recently, there seems to have been renewed buzz about early Internet startup darling, PayPal. And why not? PayPal looks to be eBay’s big source of growth in the next few years, projected to compose about 1/3 of eBay’s revenue by 2011. I have seen tweets and blog posts from venture investors either referencing PayPal’s innovative beginnings or just outright looking for payments processing platforms that could attain similar success.

While PayPal has been a wonderful tool and the go-to currency for online users, it has left food on the table for other hungry startups. As we go electronic and green with regard to paper products, the one paper product that does not seem to be going anywhere is paper currency. While I would assume credit and debit card payments have increased over time, their convenience is not quite ubiquitous, especially when dealing with small business-to-consumer transactions (think about your local city deli’s “no cash” policy) or consumer-to-consumer money transfers. PayPal is indeed the preferred e-commerce currency, but it has thus far fallen short of being the global digital currency.

I have no doubt that PayPal will continue to innovate and try to reach that last mile of digital convenience, but as Josh Kopelman recently noted, the higher risk tolerance of startups versus public companies often serves as a competitive advantage for young companies. I am happy to see friends (at WePay and another in stealth mode) starting bill/payments processing companies to fill apparent gaps in electronic currency.

The most interesting play for me in all this will be mobile. I expect the iPhone to help move things along in mobile payments as it has for everything else mobile. iPhone 3.0’s more extensive Bluetooth support and possible addition of near field communications (NFC) capability in the next hardware upgrade could trigger the growth of mobile payments. Cell phones can then provide the same function as MasterCard PayPass or similar credit cards.

Hopefully in the near future, when you share a cab with a friend, and he says he doesn’t have any cash on him, you can force him to ante up with his cell phone.


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