With Plug-In, PayPal Looks for Expanded E-Commerce Reach

PayPal Inc. on Tuesday will make available to its entire account base a so-called virtual debit card it has been testing with a large number of account holders for nearly 18 months. The new product, which PayPal has dubbed Plug-In, carries a MasterCard Worldwide brand and allows users to buy from online merchants that take MasterCard, whether or not the merchants accept PayPal. Plug-In is a small piece of software that users can download to their PC toolbars. The application detects e-commerce checkout pages and asks users if they would like to use an auto-fill function to supply credit card details. If the user would like to use the product's debit card feature, the application generates a single-use, 16-digit account number, along with a single-use card-verification value, and fills in this information automatically. Plug-In works like a signature debit card, with funds drawn from users' PayPal accounts and then paid within a few days into merchant accounts through the MasterCard backbone network, with processing provided by First Data Corp. “The biggest thing is [account holders] can still use their PayPal accounts to pay and check out,” says a PayPal spokesperson. If the user's prepaid account holds insufficient funds, the product defaults to the user's checking account. As the issuer of the product, PayPal collects interchange at signature-debit rates on each transaction, some of which it passes on to First Data. Plug-In also allows the processor to tap into the rapidly building popularity of debit cards while also expanding its reach among Internet merchants. Currently, 44% of PayPal dollar volume comes from merchant sites rather than from the online auctions run by PayPal parent eBay Inc. That percentage has grown in recent months as the company has signed more online merchants, particularly airlines. By relying on single-use account numbers, sometimes called proxy numbers, PayPal also hopes to allay consumer fears about using card products online. Such numbers become invalid after one use, making it difficult for hackers to exploit them. To generate the proxy numbers, Plug-In uses software from Orbiscom Inc., a New York City-based company whose product has been adopted by a number of card issuers for online use, including Discover Financial Services Inc. and MBNA Corp, now part of Bank of America Corp. Two other features have been added to the product for the rollout, PayPal says. These are an application that detects and red-flags spoofed Web sites and a feature that keeps and retrieves receipts for each transaction. The San Jose, Calif.-based processor introduced the product in the summer of 2006 as a so-called beta test (Digital Transactions News, July 3, 2006), which the company significantly expanded six months later (Digital Transactions News, Jan. 3). Altogether, more than 3 million of PayPal's 37.5 million active account tholders have been asked to try Plug-In. PayPal refuses to say how many actual Plug-In users it has as it rolls out the commercial product.