Apr. 18, 2012
EBay Inc.’s top brass made it clear on Wednesday that mobile technology is dominating strategic thinking at PayPal Inc., even though it does not yet account for a significant share of transaction volume for the eBay unit.
Addressing stock analysts during eBay’s quarterly earnings call, eBay chief executive John Donahoe lauded the expansion of PayPal’s point-of-sale payments service to some 2,000 U.S. Home Depot Inc. stores earlier this year. “This is just the beginning,” he said. “We have signed contracts with several additional retailers.”
He also said more than 200,000 merchants have signed up to use PayPal Here, a mobile-acceptance product for small merchants, since the service was introduced a month ago. As with a number of competing products, PayPal Here relies on a smart-phone app and a card-swipe dongle that attaches through the phone’s audio jack. “Our biggest problem is we’re not sure we can manufacture enough devices to meet demand,” Donahoe said. By contrast, one of PayPal’s major competitors, Square Inc., has signed 1.2 million merchants in the two years it has been an active service.
The online auctioneer’s chief executive was less specific than in the past about how many physical retailers are expected to adopt PayPal’s new in-store payment system, which allows consumers to pay at a POS terminal either by swiping a special PayPal card or by entering a mobile number and PIN. Last summer, for example, Donahoe used the phrase “as many as 20” in referring to how many chains were expected to deploy PayPal in 2012, and in October a senior PayPal executive referred to 20 retail companies having lined up to accept PayPal in their stores.
Later in Wednesday’s presentation, in response to a question from an analyst who referred to the 20 expected retailers but did not question Donahoe about the number, Donahoe repeated that “we have several under contract.” But a PayPal spokesperson says the company is not backing off on its projection of 20 merchants. “We are still on for that,” the spokesperson tells Digital Transactions News by e-mail.
Donahoe did repeat an assertion he has made on prior earnings calls, saying 2012 is a “learning” year for PayPal in POS payments, and that the company is preparing to roll out to various retail segments, as well as globally, next year and in 2014.
As he has been in the past, Donahoe was somewhat skeptical about near-field communication, a two-way, close-range communication technology that major rivals like Google Inc. and the carrier venture Isis are relying on for mobile payments in stores. While Donahoe has jokingly dismissed NFC in the past as “not for commerce,” he said on Wednesday that “it’s going to be at least another couple of years before you see widespread adoption of NFC.”
On the same call, eBay’s chief financial officer, Bob Swan, dismissed any concerns that banks could hike the fees PayPal must pay for access to the automated clearing house network, a key funding mechanism for PayPal that helps keep a lid on its transaction costs. He said PayPal has four years remaining on a contract that governs its use of the ACH, and that “we’re well protected against any inflationary pressure.” Indeed, he said eBay expects ACH pricing to continue trending downward. Adding that he is asked this question often, he said, “We don’t consider it that big a deal.”
Globally, PayPal added 3.5 million active accounts in the first quarter, reaching 109.8 million, up 12% from the same period a year ago. It processed 555.7 million transactions, a 31% increase from the same quarter in 2011, and its dollar volume hit $33.9 billion, a 24% year-over-year increase.
PayPal’s transaction margin, the amount it keeps from merchant fees after expenses and losses, jumped nearly a full percentage point in the quarter to 65.6%, chiefly owing to sharply a higher revenue rate (3.87%) and lower expense rate (1.07%).
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