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After months of steady gains, the merchant-services portion of PayPal Inc.'s transaction volume topped the volume coming from eBay Inc auctions for the first time in the third quarter, eBay reported on Wednesday. In line with this result, the online auctioneer also reported PayPal has been adopted by 35 of the 100 largest online merchants. Altogether, more than 1 million merchants now use PayPal, eBay chief executive John Donahoe said in an earnings call with analysts. But Donahoe and Bob Swan, eBay's chief financial officer, assumed a somber tone during the call regarding the slumping economy and its impact on eBay businesses, including PayPal. Payment volume from online merchants totaled $7.55 billion in the three months ended Sept. 30, up 49% over the same quarter in 2007. This growth drove merchant services to a 51% share of the processor's total payment volume?the first time it has accounted for more than half of volume. Payments from eBay auctions were up a comparatively modest 12%, to $7.27 billion. “Merchant services posted another strong quarter despite a difficult economic environment,” Swan said during the conference call with securities analysts. PayPal now processes 5.3% of all U.S. e-commerce dollar volume excluding eBay, he said. Nonetheless, Swan said PayPal and other eBay businesses have been feeling the effects of the economic downturn. “PayPal did suffer from decelerating growth rates starting in the second or third week of August,” he said. “We'll be operating in a very difficult environment through the holiday season.” Much of the slowdown, he added, has occurred outside the U.S. The average ticket on PayPal fell slightly to $69 in the quarter, from $71 in the second quarter. PayPal's revenue leveled off in the quarter, at $597 million. Some 65.3 million active PayPal accounts generated 214.5 million transactions in the period, eBay reported. These counts are up 19% and 25%, respectively, over the third quarter of 2007. The processor generated a 62% margin on transactions, in line with previous quarters. With reference to the pending acquisition of online processor Bill Me Later (Digital Transactions News, Oct. 6 and 8), Swan said the deal is expected to close in the middle of the fourth quarter. In response to an analyst's question, he said the company's portfolio will hold about $550 million in receivables at closing.
