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PayPal is preparing to launch a new payment system that simplifies the process of buying products from within an online application, The Wall Street Journal is reporting.

According to the report, the new service will be called PayPal X. It will allow users to sign in to their PayPal accounts and purchase products from within a respective application.

The service, which has reportedly been in limited testing, is eBay's best hope for capitalizing on the burgeoning in-app payment market, which has witnessed Facebook emerge as one of PayPal's strongest competitors.

According to The Wall Street Journal, Facebook's in-app currency, Facebook Credits, is now being considered by many developers that are lured by the social network's size and reach.

Sebastien de Halleux, chief operating officer of social-gaming company Playfish, told the Journal that his company is trying out Facebook Credits to possibly replace PayPal. He told the Journal that Facebook's service "can create a lot of value by reducing friction and allowing many more people to spend money." It also helps that Facebook's system, unlike PayPal, is built into the social network.

With PayPal X, it seems the online-payment company is trying to stay relevant in a market that is becoming increasingly complex (and crowded). It should be interesting to see if PayPal X can help PayPal stay relevant--and compete with Facebook.

The heated mobile-payment wars are expanding...beyond mobile. Zong, one of the start-ups hoping to capture the market for online micropayments billed to a mobile phone, announced Thursday the debut of "Zong Plus," which lets members link credit or debit cards to their Zong accounts.

It's another move that pits Zong against Boku, a competitor that launched right around the same time with broader global reach--last month, it announced its expansion to subscription-based services in addition to on-demand micropayments.

At launch, Zong Plus is compatible with Visa, MasterCard, Discover, and American Express accounts,

"Today you've got a variety of products for different kinds of payments and services," vice president of product management Hill Ferguson told CNET News. "You've got PayPal. You've got several of us in this mobile payment arena. What Zong Plus does is just elevates us into a different mobile payment type."

On the surface, adding traditional credit card payments seems to defeat the purpose of Zong, which inherently tries to offer a simpler and more universal alternative for small payments (cell phone carriers put a cap on how much can be spent). But Ferguson said that Zong Plus, which is free for participating merchants to upgrade to, "is an optional feature for consumers who have payments cards and feel that the incentive that we offer is powerful enough for them to open up their wallet and type in the information."

What's that incentive? Part of Zong Plus is a loyalty program that will rack up points much like airline miles. In a participating game or other micropayments-linked application, this means that when enough points have been accrued, the member may be alerted that their next purchase is "on the house."

Whether it will work is still unclear. Zong has deals with social gaming and virtual-world companies like OMGPOP, IMVU, and Gaia Online, but there are still enough rivals offering similar packages as well as the off chance that a big e-commerce player like PayPal could launch a service of its own and snuff out the competition.

The announcement comes in advance of the Virtual Goods Summit in San Francisco, where pretty much any start-up involved in the latest generation of e-commerce (read: magic swords and Mafia dons) will be showing off its wares. Plenty of other companies will be making announcements, too, presumably some in the payments space.

Facebook COO Sheryl Sandberg speaks with John Battelle at the Web 2.0 Summit about features we can expect from the social-networking site.

(Credit: James Martin/CNET)

SAN FRANCISCO--Two of the biggest rumors about big, upcoming Facebook products--an ad network and a payment transaction platform--won't be making a big splash anytime soon, chief operating officer Sheryl Sandberg said in a talk on Wednesday afternoon at the Web 2.0 Summit.

"We're asked it all the time," Sandberg said on the question of whether Facebook would be launching an ad network for external Web sites using the Facebook Connect universal-login product. "We focus on building products for users and we think about the monetization later. And I'm not saying that in a cute way, because we are very focused on monetization."

Then there are the reports that Facebook will be launching a PayPal-like transaction system or large-scale virtual currency, a rumor that's been floating around literally for years. "There's a lot of speculation on payments, and (we) don't want to fuel the speculation," Sandberg said in her talk on Wednesday. She did say that Facebook processes payments internally for advertisers buying up inventory ("We needed people to be able to buy ads internationally," she explained) and that it's playing around with the "credits" system that it uses in its "gift shop" feature.

"We are doing some testing with a couple of developers to see if they can use credits in apps they have," Sandberg said. "That's all we're talking about right now. We're in a learning phase."

Some potential customers have hinted that Facebook may have already gotten too big to deploy such a product. When asked about the idea of a Facebook payment system, John Cahill, the CEO of teen virtual-world Meez, told CNET News earlier this week that he's skeptical about its potential.

"The bigger the social network, the harder it is for a currency," Cahill said. "I've spent some time in the payments space and the real-world currency space, and rolling out a payment system that can be used by millions of people is very, very difficult. If you get it wrong, you can destroy your community."

But Facebook is dipping one toe after another into the virtual-goods pool. Earlier on Wednesday, the New York Times broke the story that Facebook would be letting members gift songs to one another through a partnership with music service Lala. This would be the first concrete result of yet another longstanding rumor of a "Facebook music service."

Additionally, Facebook has partnered with a number of nonprofits for charity-focused virtual gifts.

PayPal, eBay's well established but aging mechanism for online payments, is trying to rebuild itself for a new generation of online commerce possibilities.

At an event for press and developers on Thursday, PayPal and its partners described several new programming interfaces that are part of the company's upcoming Adaptive Payments Service and showed what developers can do with them.

For example, Microsoft will use the interface to enable payments within its forthcoming Azure cloud-computing service. And LiveOps' on-demand outsourcing service will use it to automatically handle fluctuating payment amounts and changes to who's being paid. Finally, the interface takes PayPal beyond the browser, opening it up for use on mobile phones, set-top boxes, and other increasingly smart devices.

"It's truly disruptive," said PayPal CEO Scott Thompson at the event. "It puts developers in the driver's seat by allowing you to do what you want to do and (choose) how you want to get paid."

The new service will be available to 300 PayPal partners starting Thursday, with a public beta this November--just in time for PayPal X Innovate 2009, its first developer conference.

PayPal is pitching the Adaptive Payments platform to developers as a way to more easily build PayPal-powered payment options into their applications. It's also a more streamlined version of PayPal's existing program for letting businesses manage transactions between several different parties.

The new payments service is a key part in PayPal's plan to double its revenues within the next three years. Back in March, PayPal's president Scott Thompson promised as much, saying that by 2011, the company should be doing somewhere between $100-120 billion in annual payments. PayPal has also had a fire lit underneath it since Amazon rolled out its own online payments service around this time last year. It let users make online purchases using billing information that was stored on Amazon.com

PayPal isn't just central to eBay's future. It will eclipse the company's auction and commerce operations, the company says.

"PayPal is a business that will be bigger than eBay," eBay Chief Executive John Donahoe said Thursday at the Fortune Brainstorm conference.

PayPal is a force to be reckoned with. On average, more than $2,000 goes through PayPal every second of each day. It has 75 million active accounts, and it's available in 190 markets and 19 different currencies.

Beta testing

Before the announcement, PayPal had been working with a handful of companies to test the new APIs (application programming interfaces). One of those companies is Microsoft, which is tapping PayPal for online payments in the Web applications built for the company's upcoming Azure platform.

At the unveiling, Yousef Khalidi, a Microsoft distinguished engineer, demonstrated an application that integrated PayPal's payment and billing functionality. It took only two days to integrate it into the existing product, Khalidi said.

Khalidi said that Microsoft plans to offer a simple way to build PayPal's mechanism into hosted applications as part of Azure's full release later this year.

Microsoft probably had an easier time choosing PayPal for its payment service than some of the alternatives: Amazon Flexible Payment Services and Google Checkout both come from companies in direct competition with Microsoft's Azure cloud-computing service.

Michael Ivey, CEO and co-founder of TwitPay, also took the stage to show his company's use of the new PayPal API--specifically to let people pay multiple people at once.

"In one transaction, I'm paying four different people," he said. Before the new APIs, the service would require users to make each payment as its own transaction.

Sites already using the new API include: Webassist, GroupCard, Lottay, Rainfall of Envelopes, and MedPayOnline.com

"PayPal will help you get paid for your innovations--your business will become our business," Thompson told the developers. "We view you as our third set of customers."

New features

The new payment service has a handful of new features designed to make it easier for developers to make money with their applications and services.

Thompson said that even if developers were acting as an intermediary between the person sending the money and the recipient, they would now be able to take their cut of that transaction--just as PayPal does.

Part of getting that to happen involves a new API that lets developers create peer-to-peer and business-to-business money-sharing applications. They can now also split up payments into several transactions and let users authorize a payment after the transaction's been made. Those two mechanisms can speed purchasing, regardless of whether the buyer is ready to pay the full amount at the outset.

As part of the new platform, PayPal also is changing the way fees are charged. Application developers can choose to have the sender of the money, not just the recipient, pay the fee.

In addition, the fee rates can be changed based on the type of purchase, which should ease the chore of handling both high-value transactions and micropayments (transactions below $12) within the same application. As it stands today, PayPal currently requires sellers to have two different accounts open, one for bigger payments and another for micropayments--and each has different rates.

People use PayPal today through a Web interface, but a new API will bring PayPal to nontraditional computing platforms including mobile phones, set-top boxes, and gaming consoles. That's important, given that those devices increasingly are networked and have their own ecosystems of applications. And moving to a browser can be disruptive to a user who just wants to make a quick payment.

Using PayPal that way also means that a developer must build the necessary user interface, though. PayPal didn't provide specifics on that element of the new payments system.

Overall, Thompson said the new payment system will help PayPal keep pace with changes in technology and business.

"The pace of innovation is just staggering," he said. "And the next wave of innovation is poised to move that much faster. "

CNET News reporter Ina Fried contributed to this report.

Mobile payment start-up Boku, integrated into social game Puzzle Pirates.

(Credit: Boku)

Some would say our cell phone bills are high enough already. But two emerging start-ups are hoping to make mobile devices a hub for one of the hottest trends on the Web: micropayments.

Enter Boku, which launched officially on Tuesday with a whirlwind of announcements: its public launch after a year in stealth mode, its acquisitions of smaller companies Paymo and Mobillcash, and a $13 million round of venture funding led by Benchmark Capital with contributions from Index Ventures and Khosla Ventures.

A social-networking, gaming, or retail Web site can install Boku as a payment platform much like PayPal. But instead of entering a credit card number, members enter their cell phone numbers. A confirmation text message is sent to the cell phone, which the member must reply to for security purposes. No registration is required, and the charge goes to that member's phone bill. It's quite an idea, and one with invariably will raise plenty of questions about economics, social-media revenue, and the big one--security.

"We're focused on getting to as many publishers and merchants as possible," said Ron Hirson, an AT&T veteran who leads up marketing at Boku. The start-up is launching with carrier compatibility in 53 countries, integration into a number of social apps (including the ubiquitous "Mafia Wars"), and an official partnership with Hi5, an entertainment-focused social network with a big foothold in a number of Latin American countries. "We want to make this value proposition, this technology that we've built, and get to all the social games, all the casual games people play, (and) MMOs."

But Boku already has an extremely close competitor: Zong, which first launched in the U.S. in the spring of 2008, and which offers the same strategy of facilitating micropayments with a cell phone number, and which has already set up shop in virtual-goods havens like RockYou's social-net apps, teen site MyYearbook, and avatar company Meez.

With both companies now launched, now it's time for the land grab.

"I think we're on for a good boxing match in the ring," Zong CEO David Marcus said in an interview with CNET News.

It looks like it'll be quite the rivalry, since this is a situation where both companies want to achieve PayPal-like levels of ubiquity. Zong says it's more user-friendly; Boku touts a broader global reach. Boku says it's more customizable for merchants that want to install it; Zong says it has an advantage by partnering directly with carriers whenever possible and avoiding aggregation companies that effectively resell carrier relationships.

"We win in the fact that we don't use aggregators in 80 percent of our carrier connections...direct, with no intermediary whatsoever," Marcus said. "These aggregators were basically built to service ringtone companies and wallpaper companies, and have a very different infrastructure than the infrastructure that we've built for payment."

That strategic decision to avoid aggregators, Marcus added, was actually what kept Zong away from purchasing Paymo, which it had been considering before Boku eventually snapped it up. "Until a few weeks ago we were looking at acquiring Paymo as well and passed for one main reason," Marcus said. "They have great coverage in developing-world countries but only work through aggregators, and that's the case with Mobillcash as well."

But its willingness to partner with carrier-relationship aggregators has given Boku the advantage in reach, something that Zong's Marcus acknowledged (though he says it's adding two or three new countries each month).

"We want to build this global standard for mobile payments, and you need the global reach for sure, and we have that immediately," Hirson said of Boku, adding that it has twice the reach of its nearest competitor.

So why is this such a big deal that two start-ups have gotten so gloves-off about wanting to seize market share? With news stories galore about the kinds of dollars that some gaming companies are raking in with the sales of virtual goods--just read any headline about Zynga--the idea of making it easier for people to pay for small in-game transactions is quite appealing. Venture funding for virtual goods-related companies reached nearly $70 million in the first quarter of this year. And both companies say they're looking forward to the extension of Facebook's internal payment system to developers, hoping that they can integrate their products into the platform for even broader reach.

There's another angle to it: social networks and gaming sites are now a global phenomenon. In many countries, and not just those in the developing world, credit cards are far less commonplace than in the U.S. From what it looks like, the anticipated "Pay with Facebook" system may require a credit or debit card. The fact that Zong and Boku don't require either registration or a credit card could make it easier for more people to spend more money online, as much as it may sound an alarm with security freaks.

They also both speculate that their rivalry will likely continue to be a two-horse race, to use another terrible competition metaphor. Dealing with the security infrastructure required, not to mention carrier partnerships, is difficult for start-ups and established companies alike.

"The barrier to entry is fairly high," David Marcus said.

Hirson was a little more vocal about the difficulty of building a company in the space. "I would not wish upon my worst enemy the idea of trying to connect to hundreds of carriers and aggregators," he said. "It is extremely challenging dealing with the numbers of Byzantine rules you have in each country."

It's too early to tell which company will win--especially since market share is dependent on game developer and social-network preferences much more than consumer choices--if there even proves to be a winner. As inconceivable as it may seem right now, the bottom could still fall out of the virtual goods craze. And as consumer habits in both online payment and cell phone use change, so could the chances for success of a start-up that will face such extensive security and expansion challenges.

"We know we're going to attract all kinds of unsavory characters trying to do bad things, and we're trying to build ahead of that," Ron Hirson said.

But either way, this is a space to watch as social networks and gaming companies jump further into the micropayments craze.

"The space is definitely growing, and it's in hyper-growth stage," Marcus said, "and you're going to have major players that are going to enable mobile payments in the very near future."

Newspaper and content providers on the Internet are getting increasingly antsy about how to make money. Kachingle announced its solution in February, and it has gained so much interest, the founders say, that the launch is being delayed while the team builds out the service so it can support what they think will be a popular offering.

Here's the basic idea of Kachingle: Users contribute a small amount, currently $5.00 per month, voluntarily. While surfing they select content sites they like and want to support. At the end of the month, their monthly fee is distributed to their sites, based on how much time they spent on each site.

Founder Cynthia Typaldos created the idea five years ago, but says it was too early. "Content providers weren't desperate enough," she says. They are now, but Kachingle isn't yet ready. It should launch in July. At the moment, some parts of the original product don't scale, Typaldos says.

Kachingle has had over 250 unsolicited inquires to use its service, of which 75 percent are from the U.S. and Canada, and 25 percent from the rest of the world, according to Typaldos. So far 80 percent of the queries are from bloggers and 20 percent from other content sites like newspapers, some of which have multiple sites and millions of users.

"We're going to have at least three, probably five or six major newspapers signed up by the time we launch," said Fred Dewey, CEO of Kachingle.

When you buy a product online and use either a credit card or Paypal, a significant percentage of your transaction cost--from 2.5 percent to 4 percent when all the fees are considered--goes straight to either the credit card processing company or to PayPal. With so many retailers operating at such slim margins already, this is a material expense. While payment processing will probably never be free, a new company, Noca, is launching today that undercuts payment processing by an order of magnitude: It charges just 0.25 percent for transactions.

Noca, CEO PJ Gupta told me, does not enable credit of any sort. Rather, it's a financial interchange platform that lets consumers pay for goods through direct checking account withdrawals.

Gupta told me he was formerly in charge of Visa's network architecture, and that Noca is built in a more efficient way. "There's no reason to use IBM servers today," as the credit card processing companies do. "There are two to three order of magnitude of inefficiencies there."

He also says that Noca is more secure. Transactions are handled and encrypted by Noca's servers; merchants never see the checking account and bank routing numbers consumers enter (the same is true of PayPal transactions). An additional, adaptive security comes in to play depending on the type and amount of the transaction.

In a live demo where Gupta was buying $10 worth of digital goods from early Noca customer Klatcher, the system asked for a mobile phone number, sent a PIN to it, and required the user to enter that PIN on the transaction form. I didn't see how that added any security at all (the buyer could give out any mobile number), but Gupta told me that if the transaction had been for more money or for physical goods, the verification process might have incorporated Yodlee's system of challenging the buyer to produce personal information from financial records, such as selecting an accurate previous address or amount of the buyer's regular mortgage check.

To pay using Noca, get out your checkbook and copy down some numbers.

Gupta believes that the technology he's built to link into the banks, prevent fraud, and do so cheaply is a competitive barrier. But I am surprised that his customer roster at launch is sparse--only three vendors, and probably not one you've heard of. There are a dozen companies evaluating the system or getting closer to launching with it, Gupta says. There will be major vendors online with Noca, "well before June 30," he promised.

One downside: Noca doesn't offer chargeback or dispute arbitration services. That's between merchants and their customers. But it does give consumers far more detailed transaction statements than credit cards or bank accounts.

Noca is a smart company for the current economy. Credit is tight for everyone, including consumers, some of whom are losing or just throwing out their credit cards. Noca makes online purchasing easy and secure even without credit. And its lower fees could help make goods purchased online less expensive, too.

Amazon.com quietly unveiled on Tuesday new online-payment services it will offer to other online merchants--a move that puts it in direct competition with eBay's PayPal and Google's Google checkout.

The Seattle-based e-tailer describes Checkout by Amazon as a "complete checkout solution," with features such as Amazon's "one-click" payment option and tools for managing shipping charges, sales tax, and promotions. Google introduced a similar online payment processing system called Google Checkout in 2006, but analysts say it has been slow to catch on with merchants and consumers.

Amazon also unveiled Amazon Simple Pay, a service that allows consumers to use their Amazon account information to pay for purchases on other Web sites. However, as a competitor of PayPal, it's unlikely that Simple Pay will be accepted for purchases on eBay. In 2006, eBay banned its customers from using Google Checkout, according to its accepted payments policy.

The days of PayPal's dominance over casual payments online are changing rapidly. A little over a year ago, Google unveiled its Checkout service, which has become an increasingly popular way to purchase items from various online retailers using a single account. Today, Amazon.com is unveiling its own payment program that lets Amazon.com users purchase items or services using their Amazon.com account credentials and billing information.

The new program is called "Flexible Payment Service", or FPS, and is launching with an invite-only API for developers who want to integrate the new payment service. What does this mean to you, the user? If you've got an Amazon.com account, you won't have to create a special log-in or give up your personal information to participating sites in order to make a purchase. Considering how many users Amazon.com has, and the one-click nature of its Web-shopping model, this is kind of a big deal.

Of course, this doesn't come free. While there are no start-up charges for users or sites, Amazon collects a small fee for each transaction, from purchases as small, or smaller than $.01. The rates are listed on the FPS info page, and from the looks of things seem like a better deal for smaller transactions when compared to Google Checkout and PayPal.

One of the first sites out the gate with Amazon FPS integration is FreshBooks, an invoicing service we covered last year. Expect to see many others in the coming months as Amazon opens up the beta.