• by Mark Walsh  @markfwal, March 12, 2010

What does the new partnership with Facebook mean for PayPal? Will PayPal's global reach bring in new advertisers for Facebook internationally? Why isn't it doing a better job on mobile? We asked PayPal director of consumer business development, Renata Dionello, all this and more.

OMD: What does the new partnership with Facebook mean for PayPal? Will PayPal's global reach bring in new advertisers for Facebook internationally?

Dionello:From PayPal's perspective, Facebook has over 400 million users, so it's a great platform to be on, and we already had a a very strong presence on that platform, through being accepted on the social games [applications], but the advertisers were very keen and kept asking Facebook for PayPal as a payment method for the advertising side of the business. And so it just makes sense for them to expand their global reach by accepting PayPal as well. So it's great both from the consumer side of the business, and also from the merchant side for us to reach those advertisers and then as Facebook Credits takes off, it makes sense for PayPal to be one of the payment methods in the wallet.

OMD: Facebook's own virtual currency -- Facebook Credits -- has been referred to as a "PayPal killer." Does the company view Facebook both as a partner and potential competitor in online payments?

Dionello: What's great about this deal is that it makes clear that the companies have very different focuses in terms of how they are going to grow. So PayPal is really focused on building an online payment business, whereas what Facebook is really trying to do is build a virtual currency to make transactions smoother, drive more engagement with consumers, and drive more commerce -- but not necessarily focused on building a Web-wide payments mechanism. So we're much less competitive and more in a partnership situation.

OMD: But through Facebook Connect, couldn't Facebook at some point try to launch a Web-wide payments system?

Dionello: Could they do it? I'm sure they could, but it doesn't seem to be their priority right now. Their priority right now seems to be focused on the experience on their platform, not building an off-platform payments system that would compete directly with PayPal.

OMD: What's been the response to PayPal last year opening up its API to developers? How big a business is virtual goods and social gaming become for PayPal? Are Facebook games like "Farmville" and "Mafia Wars" the biggest drivers of growth?

Dionello: We already had a robust business in the MMOG [massively multi-player online games] space even before social gaming really took off, and that's a very international business. So, yes, social games on Facebook have grown a lot -- and some of those companies have become pretty significant merchants for PayPal, like Zynga in particular, but there are a lot of virtual goods being sold outside of Facebook, in online gaming, MMOGs, in Asia, so certainly Facebook isn't the only platform where you're seeing the growth and the significant volume. It's definitely an area that is strategic because of the growth we're seeing and because PayPal is an excellent payment method for this space ... because of the global reach of this product; it's not a physical good, it's a digital good, therefore a developer can be in Estonia creating a game and selling it all over the world, so that's where global payment network really comes into play. We see people integrate PayPal as their first payment method in this verticle since setting up your own merchant account is a more complex activity.

OMD: What does PayPal charge for micropayments common for virtual goods?

Dionello: We have a special micropayment pricing that any merchant can qualify for -- 5% plus 5 cents, so that again is pretty differentiated from other payment options.

OMD: How does PayPal see the opportunity for digital content more broadly as media companies begin pursuing paid models online more aggressively? What do you make of criticism that PayPal doesn't have a big presence yet on mobile devices?

Dionello: I'm not sure I agree with that statement. We actually have a lot of products out there -- we've got robust P2P [peer-to-peer] applications out there for the iPhone and Android, we've got a mobile checkout product that allows a merchant that wants to sell products on mobile phones to accept payments, and we're releasing an embedded mobile payments SDK (software development kit) that allows developers, an iPhone app developer, to accept in-app payments using PayPal. The focus here is on physical goods, not digital goods, because they can already use the iTunes system to accept payments for digital goods. So, for instance, Shutterfly has an application called Wink if you take a photo with your iPhone and you immediately want to buy the physical photo and have it sent to somebody and it costs about $2, and PayPal is the way you pay for that. So, I think where you see a lot of volume is either through carrier platforms for buying ringtones or other media, and that's going through the phone bill...and then see a lot of volume on the iPhone where Apple has a pretty closed ecosystem there. Where there is more of an open ecosystem on the phone, like Web browsing, PayPal has a product for that. So PayPal is present where it can be.