PayPal’s introduction of a peer-to-peer near field communication  solution for Android reflects the company’s commitment to mobile, as well as its ambitions to own a piece of in-store transactions.

Then NFC widget is currently only available for Samsung Nexus S phones. However, it is likely to be made available for other phones and operating systems as PayPal looks to give consumers a way to shop anytime, anywhere and on any device.

“This could be very big depending on how they execute it,” said Nick Holland, a senior analyst with Yankee Group, Boston.

“Once small businesses start getting on board, this could be very interesting,” he said.

“There could be some retailers where there is no traditional checkout anymore just people wandering around with smartphones.”

Merchant ready?
It will be key to see  if and how merchants adopt the solution.

For example, a store associate could come up to shoppers in the store and ask if they would like to make a purchase by tapping phones.

Similar to eBay’s  acquisition last week of carrier billing solution Zong, PayPal appears to be trying to gain access to transactions taking place outside of the online space, where the company has traditionally been a leader.

“This is a way they can get to the physical world,” Mr. Holland said.

The advantage for retailers is that PayPal transactions are cheaper than credit card transactions.

The news comes at a time when PayPal is seeing significant growth in mobile payments. The company recently said that it expects its mobile payments volume to total $3 billion this year.

PayPal will be competing with other NFC payments services from Google and Isis.

“This is part of the bigger picture, which is that PayPal is very much pushing into the mobile space,” Mr. Holland said.

Peer-to-peer mobile transactions could make a lot sense, per Mr.Holland.

“You tap one smartphone against another and the transaction is done – it is a very primitive transaction,” he said.

Because it is peer-to-peer, the service has the potential to cut credit cards out of the picture.

“It’s an electronic check from one bank to another,” Mr.Holland said.

There is also the potential that bigger retailers will be interested in the solution.

“It could be a way, if a big merchant buys in, of driving a huge volume of transactions through PayPal rather than going through credit cards,” he said.

The peer-to-peer NFC solution, which lets people pay and get paid by tap two phones together, will be out in the market late this summer.

It was introduced at MobileBeat 2011 this week by PayPal Mobile senior director Laura Chambers.

“At PayPal, we’ve said all along that consumer behavior won’t change unless we’re able to offer an experience that’s truly better than what’s available today,” Ms. Chambers wrote in a company blog post about the new NFC solution.

“We’ve been looking at NFC technology for a while and we saw a tremendous opportunity to combine the best of NFC and the best of PayPal,” she said.

Final Take
Chantal Tode, Assoc. Editor, Mobile Commerce Daily