PayPal's 45 million users racked up $4.3 billion in payments in the first quarter of 2004. Now, the subsidiary of eBay (San Jose, Calif.) wants to become a ubiquitous "payment mark" for larger merchants as well.
If successful, customers would be enticed to conduct e-commerce using ACH debits rather than credit cards and signature debit. Nevertheless, PayPal hopes that banks will see it as a partner instead of a competitor. "We are offering a service that they can add to their stable of services and make some money out of it," says Alan Tien, senior product manager on PayPal's merchant services team.
Specifically, PayPal could help banks create relationships with budding sellers not yet ready for a merchant account. "Today, the bank, at a certain cutoff level, says, 'Sorry, I can't deal with you, because you're too small or you're too risky.' There's a lot of lost opportunity," Tien says.
PayPal allows buyers to use either a credit card or an ACH debit to fund their transactions. Last October, the company formed a partnership with CyberSource (Mountain View, Calif.) to allow online merchants to accept PayPal payments without additional integration. That's the value of using CyberSource as a payments "gateway," according to Tien. "Instead of hooking into five different processors, you hook into one gateway," he says. "Then they negotiate all of the different back-ends."
But for entities that want to connect directly into PayPal, the company has now made it easier to do so using Web services technologies, such as Simple Object Access Protocol (SOAP) and Web Services Description Language (WSDL ). Web services are technical standards used by developers to ensure interoperability and adherence to common protocols. By publishing its technical standards, PayPal has made it easier for developers to integrate PayPal into their existing payment processes, and even into their development tools. "If you're using Visual Studio .NET, you download the WSDL file from PayPal, and all of a sudden, all of our variables just show up in your tool," Tien says.
Merchants' fulfillment processes can be improved as a result. "You might want to see the details of the orders that have been placed - in real time," says Dave McClure, director of PayPal developer networks. "Or even on a daily basis, [you could] download a series of all of the transactions that have occurred, and then do a 'pay, pack and ship' process."
PayPal will also allow automated handling of refunds and disbursements. "It's a very flexible way to do a check run for a mass group of recipients," says McClure, who points out the cost savings of eliminating paper checks.
PayPal's new Web services are a step in the right direction, notes Gwenn Bezard, analyst, Celent Communications (Boston). "I'm not sure if it's enough," he says. "The tools that they are providing are designed for the merchant to track the sales and query the transaction," he adds. "But it's not really on the consumer side."
Online merchants such as Amazon.com thrive by encouraging impulse purchases, such as with "One-Click" ordering, which may be a challenge for PayPal with larger players. "They know that consumers may stop buying something along the way if the process to make the payment becomes cumbersome," Bezard says.
"A mid-size-to-large merchant is going to favor close, tight integration between the payment system and its own Web site," Bezard explains. "Typically, you have to leave the Web site of the merchant to make a payment with PayPal."