PayPal Now Aims for Consumer Awareness of Its Expanding Merchant Presence

With its “PayPal Offline” initiative to sign point-of-sale merchants for PayPal acceptance well under way, the payments subsidiary of eBay Inc. now is turning its attention to consumers, eBay executives told analysts on Wednesday.

“PayPal intends to be everywhere consumers need an easy, safe, secure way to pay,” eBay president and chief executive John Donahoe said at the company’s third-quarter earnings call. Everywhere, he said, means online, from mobile phones and in stores. He repeated his earlier forecast that mobile payments, a big growth market for PayPal, would hit $10 billion this year.

To make consumers aware of the new point-of-sale options, PayPal is running what Donahoe calls “small tests” with various retailers in an attempt to “create little pockets of consumer engagement.” He didn’t provide much detail, but said the incentives could include “merchant-specific balances,” or a small reward for paying with PayPal. On a related note, PayPal and eBay this week also launched their first integrated marketing program online.

PayPal now has 10 retailers with 7,000 locations live for POS acceptance. Donahoe expects 20 by year’s end, and PayPal’s recent agreement with Discover Financial Services holds the potential to add 7 million locations. In addition to companies announced earlier, some of the retailers now in PayPal’s fold include Toys ‘R Us, Best Buy, Sony, GNC, Macy’s, Target, and Walgreens.

“This represents an enormous opportunity for our company,” said Donahoe. “We’ve gone from competing in a $500 billion e-commerce market to now a $10 trillion retail market where half of that today is being Web-enabled … there’s strong interest from retailers in bringing PayPal to point of sale.” Users are making about 70% of their POS payments with their PayPal PIN and a mobile-phone number rather than PayPal’s new payment card, a ratio in line with the company’s expectations, according to Donahoe.

PayPal had 117.4 million active users worldwide as of Sept. 30, up 14% from 103 million a year earlier and 4% from 113.2 million in the second quarter. Users made 589.2 million payments in the third quarter, a 28% increase from 459.2 million a year earlier and a 4% increase from 564.8 million in the second quarter.

The third quarter’s worldwide payment volume hit $35.2 billion, up 20% from $29.3 billion a year earlier. Some 67% of PayPal’s third-quarter volume came from merchant clients, with the rest coming from sales on eBay.

Payments generated $1.26 billion in net transaction revenues for eBay in the third quarter, up 22% from $1.03 billion a year earlier. The average transaction margin came in at 64.8%, up from 61.5% in 2011’s third quarter but down from 66.3% in the second quarter.

Press accounts this week said PayPal was laying off 400 employees. In response to a question about the cuts, Donahoe said PayPal is integrating nine separate product units into one, which resulted in some job losses, but the company is not embarking on a general cost-cutting effort.

Total payment volume on eBay’s lending unit, Bill Me Later, hit $775 million, up 37% from a year earlier. EBay executives said the company is considering expanding Bill Me Later to international markets, especially Europe, but they wouldn’t say when.