Digital Transactions Authoritative, insightful and timely information for payments professionals
Online auctioneer eBay Inc. on Wednesday said its PayPal Inc. unit has generated more than $30 million in payments so far on the open platform it introduced in November. Thousands of developers have now written applications using application programming interfaces PayPal has introduced for the platform, eBay officials said, allowing the processor to launch new products while keeping its research-and-development costs in check. In remarks to equity analysts as eBay announced its first-quarter earnings, eBay chief executive and president John Donahoe also dismissed any notion that eBay might spin off its rapidly expanding online-payments unit?a notion that has floated around in the payments industry in the wake of eBay's recent decision to divest most of its Skype voice-over-IP unit. Such speculation may also have been heightened by Visa Inc.'s decision this week to pay $2 billion in cash for online-payments concern CyberSource Corp. (Digital Transactions News, April 21). “We continue to believe the best way to drive long-term value is by keeping these two businesses together,” Donahoe said in answer to an analyst's question regarding a possible PayPal spin-off. “Ebay continues to provide significant numbers of new customers for PayPal, in essence for free, and eBay's balance sheet allows PayPal to make investments like Bill Me Later.” Ebay acquired the Bill Me Later Inc. online transactional-credit payments service in 2008 for $945 million, most of it in cash, and merged it into the PayPal online wallet late last year. Besides touting PayPal's new platform, Donahoe took the opportunity of the conference call to highlight PayPal's initiatives in mobile payments, as well. A PayPal app for Apple Inc.'s iPhone handset reached 1 million downloads from the Apple App Store less than three weeks after its mid-March launch, the processor recently announced. The app includes a feature called “Bump” that lets users transfer funds by touching smart phones. PayPal generated nearly as much mobile payments volume in the first quarter as it did in all of 2009, Donahoe said, without giving numbers. PayPal's results continued to help buoy its parent company. The processor now claims some 84.3 million active accounts, up 4% since the end of 2009 and 15% over the 73.1 million of a year ago. It processed $21.3 billion in payments in the quarter on 337 million transactions, representing year-over-year increases of 35% and 33%, respectively. The payments volume and transaction numbers include the Bill Me Later results?Bill Me Later accounts for about 1% of PayPal's dollar volume?but not traffic through PayPal's payments gateway. PayPal's dollar volume in the first quarter nearly equaled that of 2009's fourth quarter, which included the holiday spending that typically inflates fourth-quarter results for payments processors. PayPal's long-term effort to recruit online merchants for acceptance continued to pay off. The so-called merchant-services business now accounts for nearly 60% of the company's payments volume, up from 53% a year ago. Some 8 million merchants worldwide now accept PayPal, Donahoe said. “We're well on our way to turning PayPal into the leader in online payments,” he told the analysts. Historically, PayPal relied heavily on eBay auctions for payments traffic, but last year merchant services as a fraction of total volume crossed the 50% mark for the first time. Bill Me Later also saw progress in the quarter in its effort to get loan losses under control. Its net charge-off rate eased somewhat to 9.49%, down from rates exceeding 11% in each of the three prior quarters. That first-quarter rate, however, is still above the 8.95% recorded a year ago. Rather than issue standard credit lines, as do credit card issuers, Bill Me Later lets online shoppers buy with credit it grants transaction-by-transaction. Its loan losses have been hurt by the deep recession that set in 2008. Meanwhile, PayPal remains solidly profitable, recording a profit margin on transactions in excess of 60%. It earned 3.59% in revenues on each transaction, while absorbing 1.18% in costs and 0.18% in fraud losses. The fraud loss represents the continuation of a downward trend from a 0.28% rate a year ago.
