Patent in Hand, Yahoo! Moves Toward a P2P Payments Product

Online search giant Yahoo! Inc. is developing what appears to be a person-to-person payment service and may be weeks away from introducing it, but details of the new service remain unclear. A spokesperson for Yahoo! told Digital Transactions News this week the Sunnyvale, Calif.-based company was “not ready to discuss” the product yet. A product introduction, however, seems likely by fall. “It's not going to be months,” the spokesperson said. “Maybe a couple of weeks?I can't say for sure.” Industry speculation about a possible payments product at Yahoo! was fueled last month when the company was granted a patent on a P2P “money-exchange” system for which it had applied nearly six years earlier. Also, Yahoo! is not without experience in P2P payments, having operated a platform, called PayDirect, from July 2000 until it shuttered the service in November 2004. Though no one can be sure yet how Yahoo! will position the new product, some experts see it as a likely handmaiden to its bread-and-butter search and advertising businesses. Yahoo! makes money by charging companies to have their listings appear with related search results. Yahoo! could complete the circle, some observers say, by processing payments for these clients from interested consumers who click on the ads, then sharing with those companies certain information gleaned from the payment data. “Payments are more valuable for the data [they generate],” says Dan Schatt, senior analyst at Boston-based research firm Celent LLC. “There's value to Yahoo! in leveraging that data.” Still, Schatt cautions, if Yahoo! launches a payment product, it will have to master myriad complications related to managing online fraud, particularly with respect to payments funded by credit card. “They will have to have a really good security and fraud system in place,” he says, pointing to the example of PayPal Inc., the Internet-payments processor owned by online auction giant eBay Inc., which processes about half its payments from credit cards, with the balance stemming from automated clearing house debits and prepaid accounts. It took years, Schatt says, for PayPal to develop a significant position in ACH payments. Yahoo!'s entry into online electronic payments comes at a time when other major Internet companies are also eyeing the business. Yahoo! competitor Google Inc., for example, is also developing a payment service, which it has already rolled out for use on certain of its own platforms, including Google Base and Google Video, and which it is apparently close to launching as an e-commerce payment mark (Digital Transactions News, March 10). The person-to-person payment business is dominated by PayPal, against which the ill-fated PayDirect unit once competed head-to-head. Any P2P launch by Yahoo! would rely on key intellectual property the company now holds. In April, the U.S. Patent and Trademark Office granted patent number 7,031,939 to Yahoo!. Dubbed “system and methods for implementing person-to-person money exchange,” the patent filing was originally submitted in August 2000. The filing followed Yahoo!'s March 2000 acquisition of Arthas.com and its P2P payment system, known as dotBank.com, a platform on which Yahoo! launched its PayDirect service.