To reach small retailers that want to sell goods through mobile phones, PayPal has expanded its Mobile Checkout capability. The new service is also designed to be easy for consumers to use.

PayPal, a subsidiary of eBay Inc., introduced PayPal Mobile in April 2006. Only big retailers could use the system, because it required consumers to enter a five digit text message code assigned to the retailer. PayPal had to approve any retailer interested in participating, then obtain the agreement of major mobile network operators to recognize the code, says Damon Williams, manager of the PayPal developers program. "We can only do that for a limited number of merchants."

The new Mobile Checkout system can be used by any retailer that creates a website designed for mobile phone viewing. "It opens up the platform so anyone can come and play in this space," Williams says. "You don't need to be a large company approved by us."

PayPal's 143 million registered users can pay with Mobile Checkout after they register a four digit PIN for mobile transactions. To make a purchase, the consumer enters their cell phone number and PIN. "With Mobile Checkout we're offering the experience that buyers get today when checking out on someone's website, and taking that experience to the mobile world," Williams said.

Mobile Checkout provides an easy way for retailers to accept mobile commerce payments without having to make deals with the mobile carriers. The purchases are simply added to consumers' cell phone bills. These transactions are termed off deck, but the failure rate exceeds 20 percent. This happens for a variety of reasons, including problems with verification and payment, according to Levi Shapiro, a director of Telephia Inc., a mobile research firm. "We need to have extremely low failure rates that will encourage trials by consumers."

But the main challenge, Shapiro said, is to give consumers a reason to make purchases other than games and ringtones. He says 28.9 million of the 232 million U.S. mobile phone users accessed the mobile internet in March 2007, up 23 percent from a year earlier. But they primarily used it to send email, or visit weather or entertainment sites. Of those 28.9 million, Shapiro says 2.9 million visited shopping or auction sites. He could not say how many made purchases.

He said retailers selling on the mobile internet have to get word out about their mobile sites and give consumers a reason to enter the URLs into their mobile phones. There have been some successes in selling without the support of the mobile telcos.

"For example, roughly 30 percent of games are purchased off the carriers' decks," said Shapiro. Major retailers such as eBay, Amazon and Wal-Mart have an edge in what is now called mCommerce, because consumers will be more likely to try out their mobile websites, he says.

"Right now, we see extremely low penetration rates," Shapiro said. "Until we have five percent penetration, we're not at the tipping point in terms of changing consumer behavior."