With the news of eBay spinning off PayPal into its own publicly traded entity making the rounds, the question emerges what the future holds for PayPal. As one of the strongest digital payment brands in the world, the payment solution provider is a household name among digital gamers everywhere. After its acquisition by the online auctioneer in 2002, PayPal slowly but surely moved away from its parent company, as it sought to innovate and compete in markets less compatible with eBay’s business.
Moving to Mobile
Processing well over $200 billion in payments in the past year alone, and counting roughly 153 million active digital wallets worldwide, PayPal has its own battles to fight as the online payment market moves toward mobile.
What has always set PayPal apart from its competitors was its ability to appeal to early innovators. Central to its global success has been its propensity to facilitate payments where other options were either too expensive or cumbersome. Gamers, to be sure, love PayPal. In the global digital games market, PayPal is the best known brand in most of the top markets.
Emerging Slowly, But Surely
Better still, PayPal is starting to pop up in markets that are traditionally dominated by credit cards. In one of our recent studies we found that the processor has room to grow in markets that recently opened up. Gamers lead the charge here, as markets like Poland and Russia spend a combined $1.5 billion annually on social, mobile and free-to-play games. In China, eWallets facilitate 44 percent of digital game transactions, compared to only 19 percent in Japan. Having earned it stripes in Western markets, PayPal has a leg up on localized payment options for digital games markets, as publishers look for reliable payment processors when entering new geographic markets.
Top Payment Brands
In a world where localized payment options are generally the most popular, PayPal has managed to build a global presence. Among top European markets, well over half of digital gamers has an active PayPal account. And despite the incumbency of credit cards in the U.S., PayPal accounts for 26 percent of digital game transaction, by volume. This will prove to be a key strategic strength as even platform companies like Apple, which recently announced its Apple Pay solution, enter the payment space.
So really the question at hand is — now that it’s all grown up and moved out of its parents’ house — what will digital gaming mean for PayPal?
The [a]listdaily spoke with SuperData CEO Joost Van Dreunen to find out more about the changes in the digital payment space and how it might affect the rapidly growing arena of digital games worldwide.
[a]listdaily: Is PayPal going to expand further around the globe, especially for gaming Google is now using PayPal in a dozen countries for Google Play… do you think that will grow?
Joost Van Dreunen: Absolutely. Looking at the continued growth of the digital games market and, more generally, at the mass adoption of online shopping and commerce (considering, for instance, Alibaba’s successful IPO) it’s clear that consumption will increasingly take place online and via digital platforms. Gaming has always been a frontrunner in terms of early adoption and innovative revenue models, so we expect that to continue. Google has been rolling out its own payment methods, but can’t afford to ignore or block PayPal because of its popularity among gamers.”
[a]listdaily: Does bitcoin or some similar digital payment have a future in the gaming business This has had its ups and downs, value-wise, and plenty of competition being built. Will this sort of payment be a major factor in gaming any time soon?
Joost Van Dreunen: It’s possible. But although gamers may be playful, they don’t mess with the money. Given a clear incentive to use Bitcoins for gaming over both traditional and alternative payment options, gamers may be willing to switch. But this seems to exist primarily at the fringes for the foreseeable future.
[a]listdaily: Will Apple Pay have a major effect on gaming It would seem to make in-app purchases even easier, especially if new iPads support it (along with TouchID sensors) as seems likely.
Joost Van Dreunen: Not likely. Since it’s a NFC-technology it’s geared more toward physical transactions. It won’t have a big impact on games sales at retail. Here, Apple seems to follow the example set by NTT Docomo in Japan, which offers an integrated credit card system as part of its handsets to make daily transactions seamless. That’s very exciting, but not going to play a major role for gaming. Likely, it will create a problem for a company like Square instead.
[a]listdaily: Will the increasing scope and ease of use for digital payments of various types lead to more virtual item purchases in games Will different business models become viable, like very small transactions for virtual goods or time to play (10 cents an hour, say)?
Joost Van Dreunen: No. In terms of innovating on direct consumer monetization (different from indirect, such as in-game advertising, etc.) the industry is reaching a plateau currently. There’s a moment when making purchases that involve fractions of a penny are neither interesting for game companies (who will have to design and build an endless stream of items for purchase) nor gamers, who (by that logic) at some point would only be spending time in the in-game stores buying items and playing less. Effective monetization is always a function of solid game design and exciting play. No doubt there will be marginal innovations, but those won’t move the needle at large.
[a]listdaily: Other thoughts on where payments for digital games are going?
Joost Van Dreunen: It’s true that traditional payment methods will have to innovate, but they’ll likely cling to the status quo. Already we saw the acquisition of Playspan by Visa. Recently, its Ultimate Game Card was discontinued as it doesn’t fit well with Visa’s overall business. Similarly, AMEX partnered with Foursquare to see if there was value to be had in marrying physical presence with digital currency. This, too, has not reached critical mass. I expect these firms to continue to look for innovative solutions, but at the same time stick to the rivers and lakes that they’re used to for fear of chasing waterfalls.