PayPal Wants to Hitch Its Wagon to the Social Train

eBay (s ebay) CEO John Donahoe told a Goldman Sachs technology conference today that the company’s PayPal subsidiary wants to become the de facto payment engine for social media, the Wall Street Journal reports. “We want to be the platform on which some of these social-media applications get built,” he told the attendees, referring to Twitpay — a service that allows users to send payments via Twitter and was recently acquired (after failing to gain much traction) — as an example. PayPal has been trying to open itself up to developers in order to allow them to build payment more easily into their services and software, to that end launching a developers conference to talk about its open platform several months ago. And it has had some success attracting social networks, including Facebook, which said last week that it will use PayPal for transactions for virtual goods on the site.

Donahoe effectively pitched his service as the only game in town for large-scale social payments, saying:

The risk and fraud capabilities you need, the anti-money laundering…the ability to do it cross-border are very different things than just providing a virtual currency.

Facebook confirmed when it announced the PayPal deal that it was the complications of multiple currencies and international transactions that led it to choose the eBay unit as a partner, since 70 percent of its users live outside the U.S. It’s worth noting, however, that PayPal has had its own difficulties with international payments, as a recent ban on transfers to India illustrates. Donahoe also told the conference that he sees a growing demand for payments involving digital goods, and that PayPal has been talking to companies including Zynga, the leading maker of Facebook-based social games.

I see that trend, particularly in virtual goods, continuing. PayPal is well positioned to be the foundation for many of these digital goods.

The Facebook arrangement makes PayPal the engine behind Facebook Credits, an in-network payment scheme that the social network is pushing game makers and others to use, which gives Facebook 30 percent of the proceeds from each transaction. According to one analyst, such payments could become a $100 million business.

PayPal still has a lot of work to do before it can become the engine behind every social network and social media service, however. As Kevin Kelleher pointed out recently, the service is barely even present on mobile devices, despite the fact that the iPhone and other smartphones have been a dominant market force in social networking for well over a year now. Instead, much of the recent buzz has been around Square, the hot new mobile payment gizmo created by Twitter co-founder Jack Dorsey. As entrepreneur Patricia Handschiegel noted in a blog post about Donahoe’s pitch to Goldman Sachs, PayPal has to start doing some innovating of its own, instead of just hoping to hitch its wagon to everyone else’s innovations.

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Post and thumbnail photos courtesy of Flickr user cindy47452