GS Logo
The Green Sheet, Inc

Please Log in

A Thing

EBay Has Eye on Payments Business

By Patti Murphy

You may not have noticed yet, but online auction giant eBay Inc. has set its sights on the payments space. Earlier this month PayPal, eBay's unit specializing in online payments (mostly person-to-person, or P2P, transactions), agreed to purchase the payment gateway operated by VeriSign, a name that's practically synonymous with the Internet.

PayPal said it will pay about $370 million for VeriSign's payments business, which last year processed more than $40 billion in transactions. And eBay said it will combine VeriSign's payment operations with its own merchant services platform. "PayPal plans to accelerate its merchant services business by expanding its customer base to tens of thousands of new small- and medium-sized business customers online," the two companies said in a statement announcing the deal.

"We're very excited about the opportunity to extend the benefits of PayPal's services to the VeriSign customer base," said PayPal's President, Jeff Jordan. "This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly."

VeriSign's Chairman and Chief Executive Officer, Stratton Sclavos, said his company was shedding its payments business to focus more on digital security. "In addition, the acquisition provides our worldwide merchant base with the benefits of PayPal's already robust payment capabilities," he said.

The two companies also inked a multiyear agreement that has eBay investing in the deployment of VeriSign online security technologies. Under that agreement, eBay and PayPal will be among the first to roll out a new token-based authentication tool for online transactions, beginning in 2006. EBay has said it will purchase up to 1 million authentication tokens from VeriSign.

Getting Perspective on eBay

EBay has been around since 1995 and is largely credited with creating the online auction business. Today, however, eBay is much more than that, having gone on a veritable buying spree of online companies.

Earlier this month, eBay spent $2.6 billion in upfront cash and stock for Skype Technologies S.A. Headquartered in Luxembourg, Skype supports free, high-quality voice communications between folks with Internet connections and a downloadable software package, anywhere in the world. Skype also offers fee-based services such as low-cost connectivity to traditional land-based and mobile telephones.

As of September, Skype claimed 59 million members in 225 countries and territories and was adding about 150,000 new users a day, according to company statements. EBay's acquisition of PayPal (in 2002) did much to enhance the public image of PayPal, which many viewed as an online money transfer business trying to skirt banking and consumer protection laws.

At that time, PayPal said it handled nearly $10 million a day in payments, exclusively for online transactions. Currently, PayPal moves 10 times that amount of money; in 2004 it handled $18.9 billion in payments, and the company said it's on track to reach $25 billion in payments this year.

As of September, PayPal was supporting 78.9 million accounts and was available in 56 markets, the company said. Customers of eBay and other online merchants (which list PayPal as a "preferred" payment option) have established many of these accounts. But not all.

I have a PayPal account and find it especially useful for transactions involving friends and relatives. It's pretty convenient, and it lets me send money to anyone with an e-mail account. This winter, I'm joining several friends on a European vacation. It's a package deal, and one person is handling all the arrangements on behalf of the group. We each send our share of the tab to him via PayPal. He's then able to write a check from the bank account he has tied to his PayPal account.

P2P Morphs Into Commerce

As P2P payments go, it's a pretty slick arrangement. It certainly beats initiating payments through online banking, in which payments are nearly always completed by check. Much to my dismay I discovered this recently when I mistook for junk mail a large-dollar check sent to me by a family member using an online banking system. (There were no markings to indicate otherwise; not even a live postage stamp.)

Once I pieced things together (literally), I called the folks at CheckFree, the company that provides the back end for most online banking systems.

At least 85% of payments initiated through CheckFree by home banking customers go electronically (typically using the automated clearing house, or ACH), according to David Fontaine, CheckFree's Director of Public Relations. But most of the payments through CheckFree are consumer-to-business (C2B) payments, often involving long-standing relationships and regular payments from tens of thousands of households.

CheckFree's ACH links to businesses are already well established, Fontaine seemed to suggest, but it's not as easy to initiate an ACH payment to an individual. On the other hand, e-mail links millions of individuals. Without question, eBay is doing what it can to leverage those P2P connections.

Meg Whitman, eBay's President and CEO, is no stranger to banking. I remember being packed into a room with about 1,000 bankers watching Whitman's keynote address at the 2004 NACHA - The Electronic Payments Association conference. Although she didn't come right out and say, "We're out to grab a piece of banking's payments franchise," the more time that passes, and the more acquisitions eBay and PayPal make, the more obvious a goal that becomes.

For the second quarter, eBay reported $243.9 million in net revenues from payments, representing 51% year-over-year growth. The amount was equal to almost 25% of eBay's total net revenues, according to the company's earnings statement. EBay's acquisitions of VeriSign's payment gateway and Skype suggest an eagerness to grow its payments revenue stream.

"Communications is the heart of e-commerce and community," Whitman said in a statement announcing the Skype acquisition. "By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net."

Some areas of expansion noted in that statement included pay-per-call services and new categories of eBay trade that require more involved communications, such as high-end collectibles and used cars.

It's not a stretch. More than 1.5 million people supplement their incomes by selling items on eBay, according to a July survey conducted by eBay and ACNielson International Research. That's up from 430,000 in 2003. Nearly 750,000 people report that eBay is their primary or secondary source of income, the survey results show.

The most striking finding: During the first six months of 2005, Americans used eBay to sell $10.6 billion in merchandise.

Patti Murphy is Contributing Editor of The Green Sheet and President of The Takoma Group. E-mail .

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Back Next Index © 2005, The Green Sheet, Inc.