eBay Antes Up In Mobile Payments Game, Buys Zong For $240 Million

Zong

A big move in mobile payments today: eBay (NSDQ: EBAY) has announced that it is buying the mobile payments company Zong for $240 million in cash.

For now eBay will continue to operate Zong as standalone service. A spokesperson told paidContent that eventually it will be integrated into eBay’s existing payment service, PayPal, which itself has had a substantial amount of growth in mobile among its 100 million active users to date. PayPal expects to generate $3 billion in mobile payments in 2011.

In a blog post, David Marcus, the CEO and founder, notes that he will be staying on and will work under Scott Thompson at PayPal.

Zong is best known for two things up to now: its link up with Facebook, providing the ability for people to get Facebook Credits via mobile; and its relationship with operators and app developers, enabling apps to implement payment services that link up directly with carrier billing. It works with 250 mobile carriers worldwide, covering payments in 21 languages and 45 countries.

It is unclear whether (and how) eBay will continue with these two lines of business — or whether Facebook and the operators will continue to work with Zong, for that matter.

Potentially, the deal gives the auction and e-commerce giant a big leg up in being more closely involved with transactions on mobiles particularly within apps and other services, which provides a complement to PayPal, largely used to transfer money between people and businesses, although earlier this year it also started to make its first forays into digital goods.

Although the connection with PayPal makes the Zong purchase an obvious one for eBay, investors and observers will be sure to watch that this acquisition does not go the way of Skype, another eBay foray into a new area for it that never quite resulted in operational dividends for the company.

The deal comes after weeks of movement in the mobile payments space, with the point-of-sale payments provider Square getting a huge injection of cash from investors, mobile operators linking up for new payment initiatives, and Visa buying Fundamo to crack mobile payments in the developing world.

Press release below:

SAN JOSE and MENLO PARK, Calif. – July 7, 2011 – eBay Inc. announced today that it has agreed to acquire Zong, a leading provider of payments through mobile carrier billing, for total consideration of approximately $240 million in cash. Zong leverages connections with more than 250 mobile network operators around the world, offering localized, secure and easy-to-use payments capabilities for digital goods and services in 21 languages and 45 countries. Combined with PayPal’s leading global payment platform serving 100 million active accounts worldwide, the company expects that Zong will add complementary technology and talent that helps strengthen PayPal’s leadership position in mobile payments and digital goods.

Zong allows consumers to easily pay for purchases from their mobile phones or computers through direct carrier billing. Consumers simply enter their mobile phone numbers. Then, in a matter of seconds, Zong verifies that number and clears the payment on the customer’s existing wireless service account.

With Zong, PayPal will have greater ability to offer consumers even more choices in how they want to pay – virtually anytime, anywhere. Both Zong and PayPal help to enable digital goods merchants to increase conversion, because they offer a faster, easier way for consumers to pay without leaving the merchant’s site.
“Commerce is changing. With mobile phones, we walk around with a mall in our pockets. PayPal helps to make money work better for customers in this new commerce reality – no matter how they want to pay or what device they’re using,” said Scott Thompson, president of PayPal. “We believe that Zong will strengthen this value by helping us reach the more than 5 billion people who have mobile phones, giving them more choice and security when they pay.”

“Our customers love the convenience of paying with their mobile numbers – a number they know by heart, and a device that they always have with them,” said David Marcus, CEO of Zong. “We look forward to extending our services to PayPal’s more than 9 million merchants around the world. And we’re committed to working with carriers and merchants to help them drive more sales across devices.”

PayPal is an industry leader in mobile payments and digital goods. PayPal expects to transact more than $3 billion in mobile payments in 2011. Currently, more than 8 million customers are making purchases on their mobile phones through PayPal, driving up to $10 million in mobile payments per day. PayPal offers Mobile Express Checkout for merchants, PayPal Mobile Payments Library for developers, PayPal payment apps for iPhone, Android, Nokia (NYSE: NOK) and Blackberry, and location-based shopping with Where.

Earlier this year, PayPal launched PayPal for Digital Goods, a new product that lets buyers pay in two clicks without leaving their gaming experience or content site. In 2010, PayPal processed $3.4 billion in payments for digital goods.

eBay Inc. does not expect the acquisition of Zong to have a material impact on its financial guidance as issued in conjunction with its first quarter earnings release on April 27, 2011. The transaction is subject to customary closing conditions, including regulatory approval, and is expected to close in the third quarter of 2011.

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