Barnes & Noble Signing Helps Drive PayPal’s Off-eBay Push

Pursuing a 2-year-old push to sell acceptance to online merchants, PayPal Inc. reached a milestone in that effort with this week's high-profile signing of bookseller Barnes & Noble Inc.'s Web site. The nation's largest bookstore chain's e-commerce operation should help the San Jose, Calif.-based online transaction processor further reduce its dependence on auction traffic from parent eBay Inc., which for years has accounted for the bulk of its volume. According to statistics released last month by eBay, some 65% of PayPal's transaction volume now comes from auction sales, the first time that share has shown measurable decline from the roughly 70% level where it had hovered for months even as PayPal ramped up its efforts to reach online retailers?the so-called off-eBay market. “It will continue to drop,” promises Todd Pearson, senior director of merchant services at PayPal, who heads up the company's sales to off-eBay retailers. In an interview with Digital Transactions News, Pearson points out that, though auction activity continues to grow, it no longer offers the potential for transaction growth it once did. PayPal, he says, is now listed as a payment method on 90% of all eBay items. By contrast, PayPal has just begun to tap the large-merchant segment, those Web merchants doing $5 million a year and up, where it claims just 0.3% of $102 billion in annual sales volume. But its dollar-volume growth rate here is 209%. Besides Barnes & Noble, merchants in this segment accepting PayPal now include more than 30 brands, among them Dell Inc., Apple Computer Inc.'s iTunes Music Store, TigerDirect Inc., and PetSmart Inc. Meanwhile, at the other end of the spectrum, the market made up of sole proprietors?sellers doing under $250,000 annually?continues to be a growth engine for PayPal, which claims nearly one-third of the $13 billion in sales done by these merchants off-eBay. Dollar-volume processed here is growing 37% year-over-year. Merchants selling between $250,000 and $5 million annually?known as the small-and-medium-size-business (SMB) market?offer a $29 billion market, of which PayPal has carved out a 3% share. Its rate of growth in this segment is 106%. “SMB has taken a lot more energy,” says Pearson. “There are a lot of skilled, entrenched [payment] solution providers out there already [serving SMBs].” One of those providers was VeriSign Inc., whose transaction gateway PayPal acquired last fall for $370 million (Digital Transactions News, Oct. 19, 2005). The gateway, which served 140,000 merchants when PayPal bought it and was the largest such vendor in the business, presents new opportunity for the processor as it seeks to expand acceptance through its mark. “We have new merchants and we have the VeriSign merchants, and we're trying to sign them to accept PayPal,” says Pearson. Helping in this effort is an array of tools PayPal has launched in the past year, including traditional merchant accounts, an express-checkout product that allows buyers to complete a transaction with a few clicks, and an online dispute-resolution service that allows buyers and merchants to investigate transactions and communicate directly. This last product, Pearson hopes, will short-circuit some chargebacks. “It resolves a lot of issues before it becomes a dispute,” he says. “When somebody files a chargeback, to us that's a failure. Something's gone wrong.” As for competition from Google Checkout, the online payment service launched in June by the online search giant Google Inc. (Digital Transactions News, June 29), Pearson remains unfazed. “It's early to say what impact they'll have on the market,” he says. “We've seen no impact on our adoption rates or on volume that goes through our system.”