While the new partnership between S1 Corp. and PayPal Inc. doesn't directly affect ISOs, sources contacted about the collaboration believe it is important to stay abreast of PayPal's growth as an alternative to traditional merchant acquiring options.
The S1-PayPal partnership involves person-to-person (P2P) payments for online and mobile banking platforms. S1 integrated PayPal's P2P functionality into the software solutions S1 supplies to credit unions and other financial institutions (FIs). The P2P solution adds a new service that S1 can utilize to attract new FIs, according to Kareem Al-Bassam, Vice President of Payment Services at S1.
"If you're thinking of anything below the top four largest financial institutions in the U.S., most of them will want to leverage a service opposed to establishing their own payment service themselves," he said.
Al-Bassam added that PayPal's service fulfills the primary goal of consumers when they make P2P payments - instant verification that the payment was made. "They want an easy way in which they can execute and receive that money into an account that they already have," he said.
The P2P solution allows consumers to send money via mobile phone or email. Senders log onto bank accounts via computer or mobile phone and input the recipient's phone number or email address to transfer the money.
If the recipient has a PayPal account, the funds are instantly deposited there. If the recipient doesn't have a PayPal account, the individual is prompted to open one.
But, apparently, U.S. residents without PayPal accounts are becoming increasingly scarce. In an August 2010 CardBeat survey, Auriemma Consulting Group found that over 75 percent of survey respondents had PayPal accounts - a 40 percent increase over ACG's 2008 Cardbeat survey results.
Additionally, ACG found that the number of transactions performed using PayPal accounts doubled in two years, with each PayPal user making 21.2 transactions annually in 2010 compared with 10.8 in 2008.
In recent months, PayPal has made a flurry of partnerships. In October 2010, PayPal announced partnerships with VeriFone Inc., Discover Financial Services, Play Span Inc., Bling Nation, Plastic Jungle Inc. and Zuora Inc.
"Anytime PayPal does something, from an ISO's perspective, we've got to be worried because they are a game changer," said Ken Musante, President of Eureka Payments LLC. "So far, however, what we've seen, both on the merchant fronts and on the wireless side, is not necessarily a replacement for what it is that we do."
According to Musante, size is a main difference between the merchants that Eureka Payments services (high-risk and mobile merchants) and those who use PayPal.
Musante estimated that the average PayPal merchant makes only one electronic transaction per day, which makes merchants with larger daily payment volumes less than ideal for PayPal's solutions.
"They do not seem to be an effective competitor because they don't, on the wireless side anyway, have ubiquitous solutions for merchants that are actually on the go and wanting to sell product," Musante said.
"However, we need to be aware of what it is that they're doing and aware of how they're offering their product. From our perspective, we need to provide what they're not."
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