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With its developer conference just ahead and new markets such as mobile payments opening up, PayPal Inc. put the oomph in its parent company eBay Inc.’s third-quarter financial report. But with more than 90 active million customers and $22 billion in quarterly payments volume, a question on some minds is how long PayPal can keep the growth party going and competitors at bay.
An analyst at eBay’s conference call late Wednesday asked the company’s top executives about how the Durbin Amendment, the section of the new Dodd-Frank financial reform law that requires the Federal Reserve to develop debit card interchange regulations and other payments-related rules next year, might affect PayPal. He asked the same regarding Visa Inc.’s recent acquisition of big e-commerce and merchant processor CyberSource Corp. Chief financial officer Robert H. Swan said eBay didn’t have any special insight into what the Fed might come up with but in any case would do its best to continue serving merchants effectively. And regarding the second question, president and chief executive John J. Donahoe didn’t address Visa and CyberSource directly, but said payments “is not an easy thing to do.” He added, however, that, “We’re always paranoid about competition, but we are absolutely stepping on the gas on PayPal.”
Hard to argue with that. PayPal took in $100,000 in the first 36 hours after its application enabling account funding from mobile devices went live Oct. 5 (Digital Transactions News, Oct. 12). In mobile payments, Donahoe expects PayPal’s volume to exceed $500 million this year. And PayPal continues to expand worldwide, especially in big developing countries such as China and Brazil.
PayPal reached a customer milestone in the third quarter—90.5 million active registered accounts, up 4% from 87.2 million in the second quarter and 16% from 78 million a year earlier. Payment transactions totaled 357 million, up 7% from 335 million in the prior quarter and 31% from 273.2 million in 2009’s third quarter.
In value, net payment volume totaled $22.4 billion, an increase of 5% from $21.4 billion in the second quarter and 26% from $17.7 billion in the year-earlier period. (Transaction and payment totals include Bill Me Later, eBay’s transactional credit unit, but not PayPal gateway volume.) Transaction margins—revenues minus expenses and losses—came in at 62.2%, down slightly from the second quarter but up a bit from last year. Merchant services accounted for 62% of net payment volume, or $13.9 billion, up from 56% in 2009’s third quarter.
Bill Me Later’s credit quality improved. The net chargeoff rate declined to 7.28% of receivables from 8.56% in the second quarter and 11.53% in 2009’s third quarter. The third quarter’s 90-day delinquency rate, a harbinger of future losses, fell to 3.10% from 3.31% in the prior quarter and 4.97% a year earlier. Bill Me Later, which accounts for 1% of net payment volume, added 60,000 accounts in the third quarter and its total payment volume grew 53%. Donahoe said eBay orders funded through Bill Me Later are twice the size of the average eBay order.
Payments produced $797.8 million in net transaction revenues in the third quarter, up 4% and 23% from the prior and year-earlier quarters, respectively. In contrast, the eBay Marketplaces auction/merchant business pulled in $1.19 billion, up less than 1% from the second quarter and 3% from 2009’s third quarter.
Donahoe expects 2,000 application developers to attend PayPal’s Innovate 2010 conference in San Francisco Oct. 26-27, the second such annual conference PayPal has held since opening its platform to third-party developers.
