PayPal’s Push into E-Commerce Spurs New Funding Options

PayPal Inc. this week introduced new funding options that allow users to load money into their PayPal accounts with PIN debit cards or with cash, then use the funds to buy products online. PayPal's deal with First Data Corp., owner of the Star electronic funds transfer network, was announced Thursday and will let Star member financial institutions offer a PIN debit funding option to customers. The arrangement is the first announced deal in a new program at PayPal called Debit Access in which the San Jose, Calif.-based e-commerce processor is approaching EFT networks to make their cards available to load accounts on PayPal. More such deals might be forthcoming “We have had other networks that have expressed interest,” says Sanjeev Kriplani, senior director of the payments portfolio at PayPal. The Star announcement follows by one day PayPal's disclosure that it has started allowing users to fund their accounts with cash they deposit in the MoneyPak product from Green Dot Corp., a Monrovia, Calif.-based operator of a prepaid card reload network spanning 40,000 retail locations, including those of Wal-Mart Stores Inc. and the pharmacy chain Walgreen Co. The MoneyPak, which carries a consumer fee of $4.95, is a disposable cardboard card that is commonly used to load value into permanent prepaid cards, but now can be used to fund PayPal transactions. Kriplani, who says PayPal started processing these funding transactions last month, won't reveal numbers, but adds, “We're seeing volume increases on a daily basis.” The moves by PayPal to expand its account-funding sources come as the eBay Inc. unit has penetrated an increasing number of e-commerce stores. Indeed, non-eBay PayPal transactions now exceed those coming from the online auction giant. As PayPal becomes a payment option for more online merchants, those merchants are asking for more ways for customers to load their accounts, Kriplani says. “This is central to PayPal's strategy,” he says. “We absolutely heard from merchants that, to the extent you can add more funding options in the PayPal wallet, that adds value.” With the cash option from Green Dot, a customer buys a MoneyPak at a store by handing over the cash amount he wants to load into his PayPal account. When he logs into his account, he indicates Green Dot as his funding source and enters a number from the MoneyPak card, and can start spending the cash online. The process has been streamlined by Green Dot's use of Adaptive Payments, a set of application programming interfaces PayPal is officially introducing next month as part of a new platform, called Platform X. In the Debit Access program with Star, cardholders register their PayPal accounts with their banks, which allows the banks to “brand” each PayPal transaction using the Star card, says Julie Saville, vice president of product development at First Data. This, she says, appeals to member banks even more than the potential interchange income from the transactions. With each funding transaction, the customer will see Star as the default payment option as well as the logo of his bank. “This is a totally unique opportunity we wanted to offer our financial institutions,” Saville says. While Debit Access involves PIN debit cards, cardholders do not enter a PIN to authenticate themselves. Instead, they use their online-banking credentials to enroll in the program with their banks. At that point, the bank links the authenticated cardholder to the PayPal site, where he sets up PayPal credentials consisting of an e-mail address and password. With the program just getting off the ground at Star, there are no institutions live on it yet. “In preliminary discussions, we have had a lot of interest,” Saville says. “Check with us in six months.” Member banks that sign up for Debit Access will receive interchange according to a separate schedule of rates that differ from those Star levies on other transactions, Saville says, though she won't reveal pricing details. In the Green Dot deal, “PayPal and Green Dot have worked out a mutually beneficial arrangement” regarding pricing, Kriplani says, adding he can't give details.