Blizzard has just announced that PayPal is their third party vendor for managing the Diablo 3 payment service.

We're pleased to announce that in most regions, PayPal will be our payment-service partner for the Diablo III auction house, allowing players who trade with real-world currency the ability to cash out the spoils of their battle-torn adventures via a PayPal account.

PayPal will also soon be added in several regions as a payment option on Battle.net, providing another convenient and secure payment method for digital purchases of Blizzard products and services.

We’ll share region-related specifics, as well as further details on everything mentioned above, in the near future. Stay tuned!

Let me put on my shocked face.

I had thought it was pretty obvious when the two got into bed together to put other PayPal gold sellers and potential Blizzard competitors out of business. Now you why PayPal was so eager to help out Blizzard.. they must have been in negotiations. :)

This also means that PayPal might be unintentionally engaging in potentially illegal gambling once the Real Money Auction House is live. Should be interesting if the FBI launches a probe like they did in Second Life. I would love to see the matter finally settled on gambling within virtual worlds and Activision Blizzard is just the type of company to create the legal precedent.

I guess this also means that the RMAH will have at minimum 4 cuts now: the Listing Fee cut, the Transaction Fee, the Cash Out cut, and the PayPal Cash Out cut and other miscellaneous fees. There's also the government's cut. All I know is that when the Auction House fees are announced, there are going to be a lot of pissed off users. I suspect that $1 in revenue is quickly going to become a 50 cent profit.