$3B in mobile payments for PayPal this year but bigger prize at stake

PayPal’s (s EBAY) mobile payments business is now expected to do $3 billion in volume this year, double what the company predicted last fall, and up from $2 billion forecasted in April. PayPal said it’s seeing $10 million a day in total mobile payment volume, up from $6 million in March.

That’s a huge ramp-up and suggests PayPal is finding success in facilitating online payments through mobile phones, which is an extension of its existing business. But it doesn’t address where PayPal needs to go in the future: mobile payments for offline goods. Offline, real-world payments are a much bigger opportunity, representing more than 90 percent of current transactions. That’s where PayPal is looking to shift, but right now, the bulk of its business is still online.

PayPal’s mobile payments currently come in two varieties. PayPal offers person-to-person mobile payments, in which it doesn’t make money if users tap a PayPal balance or bank account or charges a percentage fee on transfers from a credit or debit account. It also makes money on mobile commerce payments, where it takes a percentage fee for goods purchased online on a mobile phone via PayPal.

PayPal doesn’t share which type of transaction is fueling the increase in volume. But it appears mobile commerce could be a significant driver here. PayPal said its two-step Mobile Express Checkout has helped companies like electronics retailer Crutchfield, which improved its conversion rate of online mobile transactions by 33.7 percent since implementing the PayPal system. Aided by its growing mobile payments business, PayPal revenues grew 23 percent in the first quarter and hit almost a billion in revenue, making up 39 percent of parent company eBay’s total revenue.

Even with the success PayPal is seeing, the bigger mobile payments challenge awaits. That’s where Google (s GOOG),with its new Wallet offering, Square, Intuit (s intu), mobile carriers, major credit card companies and a gaggle of startups are looking to compete. PayPal is in the process of marshaling its resources to achieve a bigger point of sale presence. That includes weaving together recent acquisitions like WHERE, Milo, RedLaser and Magento to build out a commerce platform called X.commerce that can hit both online and offline.

PayPal has the brand recognition to work well in this area, though as we reported earlier, it has been taking a long time to get its in-store solution ready for the market. If PayPal can put all its pieces together and build a system that appeals to both consumers and merchants, and do so in a time frame that doesn’t leave it late to the party, then $3 billion may just be the start.