PayPal Will Use VeriSign’s Gateway to Plunge Deeper into Acquiring

PayPal Inc. will use the transaction gateway it is buying from VeriSign Inc. for $370 million to thrust itself even more deeply into the business of acquiring transactions for small off-eBay Internet merchants, a senior executive for the transaction-processing unit of eBay Inc. tells Digital Transactions News. PayPal, which this summer began offering traditional credit card merchant accounts as part of a non-hosted processing service called Website Payments Pro (Digital Transactions News, June 20 and June 28), sees ownership of an online gateway as a conduit to tens of thousands of the small online merchants it has been trying to reach for acquiring and other payment products. “There's a lot more to gain from owning the gateway,” says Stephanie Tilenius, vice president and general manager for PayPal's merchant-services business. Ownership, she says, ensures PayPal can be the primary provider of payment services to the small- and medium-sized merchants that primarily use the VeriSign gateway to reach acquirers. VeriSign's gateway, which serves 140,000 mostly small online businesses, processed $40 billion in payments in 2004. PayPal has linked with gateways CyberSource Corp. and Retail Decisions USA Inc., as well as with processor Paymentech LP (now Chase Paymentech LLC), and began talking to VeriSign this summer about a similar integration deal. But, says Tilenius, it soon became evident that buying the gateway would ensure PayPal would have primacy, something it can't get when it is one of several payment providers. “A gateway offers many merchant-account providers,” she says. “We will be the primary account provider [with the VeriSign gateway]. We want to have ownership of the front door and for PayPal to be the main room.” At the same time, she says, the VeriSign gateway complements the other links, since they tend to attract larger merchants. Although she refuses to give numbers, Tilenius says response to Website Payments Pro has been strong enough to require PayPal to expand its newly established merchant-underwriting capacity. The acquiring bank behind PayPal is Wells Fargo Co., with which the processor has had a long-term relationship. “Demand [for Payments Pro] has been very strong,” she says. Payments Pro also offers phone- and fax-order processing through a virtual terminal, as well as streamlined, three-click payment for PayPal accountholders. For now, Tilenius won't project how the VeriSign gateway will expand PayPal's processing volume, though she hints further announcements regarding the gateway are forthcoming. “We haven't released our plans,” she says. “We're working as fast as we can to offer PayPal products to these customers.” PayPal, which derives about 70% of its volume from activity on online auction giant eBay, has been seeking for over a year to process more transactions from merchants, particularly sole proprietors and small retailers, doing business on the Web but off eBay. Transaction gateways serve as pipelines to acquirers and processors for these merchants, in many cases adding services such as fraud management.