PayPal says its micropayment system isn't a threat to Facebook's Credits

Paypal announced earlier this week that it had partnered with Facebook and other websites to launch a new micropayment service for virtual goods. At the time of the announcement, it was unclear how the new offering would effect existing virtual goods payment systems such as Facebook Credits. Now PayPal’s vice president of global product strategy, Sam Shrauger, says the new micropayment offering won’t cause any significant changes to those existing systems; it will just provide an additional payment method.

PayPal says its intention is to reduce the strain of buying virtual goods and other low-cost products online. The difficulty is creating some traction with micropayment models that don’t interrupt the purchasing experience, rather than finding ways to replace payment models at companies like Facebook and other free-to-play games that charge for virtual goods, Shrauger said.

“It’s hard to spend small amounts of money online,” he said. “Micropayments are more of an economic problem, we’re just looking to provide a way to reduce friction.”

It’s up to each partner how they use the micropayment system — whether they want to provide users with a way to buy a single cow in Farmville or continue having to purchase virtual currencies in bulk.

Instead of charging a flat percentage — which would be ineffective at smaller payment levels — PayPal plans to charge five cents per transaction, plus 5 percent of the transaction for every payment made under $12.

This isn’t the first time PayPal has made some kind of promise to jump on board with micropayments. The company has had a micropayment pricing structure since 2005, just nothing quite as visible as what it announced this week. The company has been saying it would explore the “purchase experience” part of mobile payments for the past six years.

The new payment system is clearly a move by PayPal’s parent company, eBay, to broaden PayPal’s offerings. As we’ve reported recently, eBay has continued to focus more on PayPal rather than on its online auctions as the primary revenue stream for the company since CEO John Donahoe took over. Just last quarter, eBay’s auction revenues stopped growing more than 10 percent year-over-year for the first time since late 2009, while PayPal continued to grow at a steady rate. In 2009, PayPal brought in $2 billion of $72 billion in online payments. PayPal has brought in around $1.3 billion in 2010 so far and is on track to generate $3 billion this year.

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