If as is widely rumoured auction site eBay soon becomes the centre of a bidding war led by Amazon, Yahoo and Microsoft, its online payment facility PayPal will have much to do with the generous offers made. Bought in 2002 as a secure way for successful auction bidders to settle their transactions, PayPal has grown to encompass over 150m accountholders worldwide, who use it to pay not only for their eBay purchases but for buy tickets, make international money transfers and even donate to the current US presidential primary campaigns.
In the UK, eBay claims PayPal to be as popular an online payment medium as Visa. Monarch Airways already accepts it as a way to pay for tickets online, and other airlines are expected to follow, as they have in the US. Although many settle their PayPal debts with a credit card, the facility also allows them to schedule payments by other means, opening access to those without a plastic card.
Some analysts say it accounts for at least half eBay's total share price, whose decline in the past year despite a continued rise in revenue and profit. Bought for $1.5bn, it certainly ranks as a far smarter acquisition than the more purchase of internet telephony freeware Skype, for which CEO Meg Whitman admits eBay substantially overpaid at $2.6bn in October 2005, subsequently taking a $1.39bn write-off of goodwill.
Online payment systems grow despite security fears
Critics point out that PayPal lacks some of the legal protections given to credit and debit card holders a source of mounting concern over the past year as increases are reported in the incidence of 'phishing', where fake messages are used to make people divulge their password details. There have also been fears that PayPal, which invests the funds left in customers' accounts for extra return, may thereby have exposed itself to the recent downturn in American stock and bond prices, and losses due to the slide in the dollar.
The growth of online retailing has led to optimistic forecasts for online payment systems. But PayPal no longer has the market to itself, with powerful rivals springing up including Google Pay and the Amazon-backed Bill Me Later. These will vie fiercely for the services of various popular websites now attempting to turn their vast traffic into a merchandising opportunity including the Facebook, MySpace and other social networking sites, the music and video download sites now grappling with iTunes, and the virtual worlds seeking to wrest market leadership from Second Life.
and could join looming battle for cashless payment
Cashless payment systems, now running experimentally in London, are soon to be rolled out nationwide - marketed to shoppers as the safe, convenient alternative to carrying coins, and FDs as the final piece in the jigsaw of tracking employees petty cash payments. Their fusion with online payment systems, via the mobile, could follow soon after.
With Skype (boasting 250m registered users) now trying to redeem itself by extending its call service to mobile phones, eBay may try to secure PayPal's advantage by marketing it as a secure payment service for mobile internet purchases.
The winners of the bidding war for eBay, if it happens, could be the curtain raiser to another shake-up in the way your online customers pay, and the way your employees run up and account for their expense.