Rumors spread in the early hours of the CTIA's Wireless 2006 trade show in Las Vegas last month about the expected launch of PayPal Mobile, an m-commerce application that lets your mobile phone do for charitable donating, online purchasing and person-to-person payments what PayPal did for eBay just a few years back: turn traditional commerce transactions on their heads.

However, prior to the announcement, people pre-judged and, in some cases, dismissed the technology, saying it was two or more years away. Then, PayPal President Jeff Jordan took to the stage and demonstrated an amazingly simple, live and — at first blush — reasonably secure process using his mobile phone to purchase a DVD from Fox Entertainment, one of the five companies that PayPal has announced already supports the company's new mobile payment service.

PayPal Mobile lets consumers buy goods and services, such as CDs, DVDs and apparel, from both businesses and individuals by sending product codes to a company via text message or sending cash directly to an individual's cell phone number.

PayPal is also partnering with Bravo, Viacom, MTV and the NBA Store for its “Text to Buy” m-commerce service as well as with charitable organizations such as Amnesty International, Starlight Starbright and UNICEF.

To add a little more credibility to his demonstration, Jordan then brought former NBA star Magic Johnson to the stage to tell how PayPal Mobile can help — is already helping — charities such as his Magic Johnson Foundation. It may not have been the Jordan/Johnson match-up some basketball fans would have liked, but it was enough to set techie tongues a-waggin' about the viability of mobile commerce.

Jordan acknowledged the skeptics. “Some people say that mobile commerce is two years away. We don't buy that. That two years is history,” he said.

And so it is. However, some say there's still a long way to go. “It's a step down the path to the phone becoming a mobile wallet, but it's pretty far away from something I think will catch on mainstream,” said Lewis Ward, research manager of wireless communications research at IDC.

Still, PayPal Mobile is a text-message-based service that is as simple as it looks — once you get started. To test its ease-of-use, this writer attempted to duplicate the demonstration by sending $10 to his daughter. There were a couple of snags, but as it turns out, they were due to a blocking problem on the part of the wireless operator and a cockpit error on the part of the user. PayPal's customer service could have been more responsive as well, but once the service was configured properly, it was a snap and as easy as advertised.

PayPal Mobile is actually the company's second iteration of a mobile transaction service, said Kevin Dulsky, director of strategic global business strategies at PayPal. The first used Palm devices and infrared technology. It was both a little ahead of its time and a little clunky.

“Then you had to be face-to-face. With this service you can simply send a text message to someone else's phone, no matter where they are,” Dulsky said.

If PayPal has success similar to that found with eBay and online payments, cell phone-based transactions could become second nature. PayPal subscribers increased from just more than 12,000 users to more than 1 million in four months in 2000 after PayPal signed on with eBay. Today, PayPal supports more than 100 million accounts worldwide.

Jordan said that with consumer confidence in e-commerce at an all-time high, the time is right to put the two together. “The promise of mobile commerce has never been better,” he said.

That may be true, but fulfilling that promise will take some doing. Skeptics abound, and most of them are concerned with security. Although malicious attacks on cell phones through phishing, spoofing, viruses or general malware have been relatively few, many cell phone users believe the time is coming.

Ward said the industry will move slowly because the last thing anyone wants is to deliver a service that winds up losing everybody money.

Among enterprise users, who would not be the primary target for PayPal's Text to Buy service, but who influence people's view of technology security and on the weekends turn into consumers themselves, recent research by The Economist (sponsored by Symantec) found that 60% felt security was a big enough concern to keep them from using advanced handsets for accessing secure data. They believe virus attacks and hacking into handsets are more likely than on their fixed-line infrastructures.

It wasn't until late February when Kaspersky Labs in Moscow discovered the first Trojan virus designed to attack cell phones. The Redbrowser.a attacked smartphones, PDAs and cell phones. PayPal would be quick to point out that its service does not open users to these attacks any more than they already are and that its method of using a call back to the originator of a payment and PIN codes makes it secure.

But as cell phones move into being a tool for m-commerce, perception will be everything. Security firm F-Secure said the techniques that work with PC malware are being tested on the mobile side.

“Text-Payment and Mobile Wallet services are now being introduced by mobile service operators, and where there's money, there's motive,” said an F-Secure spokesperson in a statement. Growth of these services could easily augment malware's attention to mobile platforms.”

Antti Vihavainen, vice president of mobile security at F-Secure, said, “The accelerating pace of emergence of new malicious mobile content is evidence of a growing number of virus writers that are directing their attention to the mobile platforms.

PayPal's Dulsky agreed that this business of electronic payments is not for the faint of heart. However, he was referring to providers like PayPal or other wannabe competitors. He said end users should rest assured.

“When we started in this business, it was like the Wild, Wild West. But we have learned a lot about risk and fraud along the way,” Dulsky said. “We've done a good job online, and we'll do the same for wireless.”

He added that the kinds of companies that have already signed up to offer Text to Pay purchasing is a testament to the faith in PayPal's system.

ONE ANALYST SAID that PayPal's success will depend on how much and how its operator partners and others promote its use. While trying the service for myself, I was told by a Verizon Wireless service representative that although the operator supports PayPal's short code, it doesn't recommend the service because it is not secure. That's not a good sign.

However, IDC's Ward offered this perspective: “They have a vested interest,” he said. “Verizon wants to have it on your phone bill. They want to be in that supply chain, so I am not surprised.”

However, a corporate spokesman for Verizon Wireless said the customer service rep was unfortunately misinformed. “There's no security issue with PayPal or its short code service. With your PayPal account from your Verizon Wireless cell phone using the short code, go ahead and knock yourself out. Buy a new motorboat; it's going to work,” the spokesman said.

However, the spokesman made it clear that the company does not support the purchase of mobile oriented content, using PayPal or any other method, unless it's from an approved content provider. “We won't let ringtones that we haven't vetted show up on your phone,” he said.

What Text to Buy and charitable donations through the cell phone will do for advertising is an open question. Companies will have better, real-time feedback on their ad campaigns than they ever have before. It could change the way advertising effectiveness is measured by tying ads more closely to actual purchases. Businesses with advertising revenue models could either be shaking in their boots at the thought of companies realizing the true effectiveness of advertising or licking their lips at the thought of companies realizing the true effectiveness of advertising.

At the very least, PayPal has changed the time frame in which people believe mobile commerce will arrive in the U.S.