PayPal marks its 10th year

July 06, 2008|By Donna Kato | Donna Kato,San Jose Mercury News

SAN JOSE, Calif. - The need was direct: How to facilitate the exchange of money and goods between a consumer and an online merchant.

The concept was simple: a service that would allow the shopper to purchase an item without sharing financial information, and, at the same time, enable retailers, small-business owners and individuals a guaranteed quick and sure payment for a small fee.

PayPal Inc., the San Jose company that revolutionized the way payments are made online, marks its 10th anniversary this year.

Last month, it launched a micro-site featuring a series of video interviews with PayPal's founders and others who played key roles in the company's history. For Silicon Valley techies and entrepreneurs enamored of the "PayPal Mafia" success story, it is a chance to hear the players talk about how it all came together.

"We have a tremendous, big, recognized brand with 60 million customers now," said Scott Thompson, 50, PayPal's president since January. A Boston native with a well-known love of the Red Sox, he adds, "But I like to say we're at the top of the first inning in a nine-inning baseball game."

Founded in 1998 by Max Levchin, Peter Thiel and Elon Musk as a way to transfer money via PDAs, or personal digital assistants, PayPal's start is the quintessential Silicon Valley startup story - complete with a $1.5 billion happy ending, the price eBay Inc. paid to acquire PayPal.

"The fundamental problem eBay had was that most sellers on the site didn't have merchant accounts with credit-card companies like Visa or American Express," Thompson said of the online auction site, "and here was PayPal with technology that worked but no demand for it and not making any money."

PayPal today has 7,000 employees around the world. It posted revenue of $582 million in the first quarter of 2008, up 32 percent from last year.

Soon after merging with eBay in 2002, PayPal went worldwide, becoming available in euros and pounds. It can be used in 190 countries and in 17 currencies. Its active accounts total 60.2 million globally, a 17 percent increase from last year.

"The underlying theme with PayPal is that merchants big and small want to sell stuff," Thompson said. "They get access to a worldwide customer base and the customer can buy from almost anywhere in the world without divulging their private financial information."

The unofficial motto of PayPal, he said, is "the world's favorite way to pay and be paid."

In the United States, 12 percent of all payments through the Internet are made via PayPal, which charges a 2 percent to 3 percent transaction fee to sellers. That's about a 94 percent share of the alternative online payment market, which also includes Google Checkout, and Bill Me Later.

While PayPal dominates, it has had some glitches. Integrating PayPal's technology into the existing Web sites of retailers and merchants, for instance, has been difficult because of coding issues. Phishers and hackers have compromised security.

To enhance protection for buyers and sellers using PayPal, eBay announced last month that, starting in the fall, customers using PayPal for their eBay purchases will be covered for 100 percent of the cost if the item does not arrive or differs significantly from its description.

Growing globally has meant triumphs as well as obstacles. Still, Thompson said the biggest opportunities for PayPal's growth are in other countries, particularly developing countries where Internet access is not common. Which is one reason PayPal is investing in mobile technology.

"We're years away from that becoming standard usage," he said of the service, a version of which launched in the United States in 2006. The new technology will allow it to take off on foreign soil, he said, where cell phone users far outnumber Internet users.

"We can solve a real problem in the way people are paying," Thompson said. At some point, he said, consumers will be able to buy goods directly from a manufacturer, say in China, for example. And when that happens, PayPal plans to be there to shepherd the exchange of money.

While PayPal is a business that depends on e-commerce, Thompson said he is not worrying about the economic slump.

"People always have occasions when they have to buy things," he said. "

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