Surely in response to growing concerns over online personal data security stemming from the PlayStation Network debacle, Microsoft is releasing a phased system update to bring PayPal functionality directly to the Xbox 360 console, giving users another payment option when buying content over Xbox Live in lieu of having to enter a credit card into the system or rush out to the store and buy a points card.

Previously, PayPal functionality was limited to the U.S. market, and only allowed users to add Microsoft Points to their account via Xbox.com. With this system update, which will roll out in stages over the next couple of weeks starting today, users can now link their PayPal and Xbox Live accounts to add PayPal as a billing option from the Xbox 360 console itself. This expanded PayPal support will be available to U.S. and international users, excluding Brazil, Chile, Colombia, Czech Republic, Finland, Greece, Hungary, India, Japan, Russia, South Africa, South Korea and Taiwan.

As a side bonus, this update also introduces a handy auto-standby feature that, if activated, automatically puts the Xbox 360 into a power-saving sleep mode if left running idle for over an hour. Compatibility for the new Xbox 360 disc format is also a part of the upgrade.

New Xbox 360 System Update Brings Expanded PayPal Functionality [Major Nelson]