PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders.
PayPal is an acquirer, performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient’s account type. In addition, eBay purchases made by credit card through PayPal may incur extra fees if the buyer and seller use different currencies.
On October 3, 2002, PayPal became a wholly owned subsidiary of eBay. Its corporate headquarters are in San Jose, California, United States at eBay’s North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska, Scottsdale, Arizona, Charlotte, North Carolina and Austin, Texas in the United States; Chennai in India; Dublin in Ireland; Kleinmachnow in Germany; and Tel Aviv in Israel. From July 2007, PayPal has operated across the European Union as a Luxembourg-based bank.
The current incarnation of PayPal is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December 1998 by Max Levchin, Peter Thiel, Luke Nosek, and Ken Howery, initially as a Palm Pilot payments and cryptography company. X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both Confinity and X.com launched their websites in late 1999. Both companies were located on University Avenue in Palo Alto. Confinity’s website was initially focused on reconciling beamed payments from Palm Pilots and X.com’s website initially featured financial services. Both services offered email payments as a feature.
At Confinity, many of the initial recruits were alumni of the Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of technical and business personnel, including many that were critical to the combined company’s success, such as Amy Klement, Sal Giambanco, Roelof Botha of Sequoia Capital, Sanjay Bhargava and Jeremy Stoppelman.
To block potentially fraudulent access by automated systems, PayPal used a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they dubbed the Gausebeck-Levchin test.
eBay watched the rise in volume of its online payments and realized the fit of an online payment system with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of PayPal. eBay made Billpoint its official payment system, dubbing it “eBay Payments”, but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions. For this reason, PayPal was listed in many more auctions than Billpoint. In February 2000, the PayPal service had an average of approximately 200,000 daily auctions while Billpoint (in beta) had only 4,000 auctions. By April 2000, more than 1,000,000 auctions promoted the PayPal service. 70% of all eBay auctions accepted PayPal payments, and roughly 1 in 4 closed auction listings were transacted via PayPal. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.
As of 2008[update], PayPal’s total payment volume, the total value of transactions, was US$60 billion, an increase of 27 percent over the previous year, and US$ 71 billion in 2009, an increase of 19 percent over the previous year. As of 2012[update], PayPal’s total payment volume processed was US$145 billion. The company continues to focus on international growth and growth of its Merchant Services division, providing e-payments for retailers on eBay.
In 2011, PayPal announced that it would begin moving its business offline so that customers can make payments via PayPal in stores.
Acquisition by eBay
In October 2002, PayPal was acquired by eBay for $1.5 billion. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint, Citibank‘s c2it, whose service was closed in late 2003, and Yahoo!‘s PayDirect, whose service was closed in late 2004. Western Union announced the December 2005 shut down of their BidPay service but subsequently sold it in 2006 to CyberSource Corporation. BidPay subsequently ceased operations on December 31, 2007. Some competitors that offer some of PayPal’s services, such as Google Checkout, Wirecard, and Moneybookers remain in business, despite the fact that eBay now requires everyone on its Australian and United Kingdom sites to offer PayPal. eBay Australia was subsequently forced to moderate its position by the Australian Competition & Consumer Commission, mandating that sellers on eBay Australia offer PayPal as one of the (but not necessarily the only) payment methods. These accepted payment methods include bank deposit, cheques and money orders, escrow, and credit cards (processed by other than PayPal).
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal’s proprietary fraud management systems and accelerate the development of improved fraud detection tools. In November 2008, the company acquired Bill Me Later, an online payments company offering transactional credit at over 9000 online merchants in the US.
As of 2012[update], PayPal accounted for 40% of eBay’s revenue, amounting to US$1.37 billion in the 3rd quarter of 2012.
As of April 2012[update], PayPal’s president is David Marcus; Marcus joined PayPal in August 2011 after its acquisition of Zong, of which he was the founder and CEO. David Marcus succeeded Scott Thompson as president, who left the role suddenly to join Yahoo.
As of 2011[update], PayPal operates in 190 markets and manages more than 232 million accounts, more than 100 million of them active. PayPal allows customers to send, receive, and hold funds in 26 currencies worldwide. These currencies are the Australian dollar, Brazilian real, Canadian dollar, Chinese renminbi yuan (only available for some Chinese accounts, see below), euro, pound sterling, Japanese yen, Czech koruna, Danish krone, Hong Kong dollar, Hungarian forint, Israeli new sheqel, Malaysian ringgit, Mexican peso, New Zealand dollar, Norwegian krone, Philippine peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc, New Taiwan dollar, Thai baht, Turkish lira and US dollar. PayPal operates locally in 21 countries.
Residents in 194 markets[clarification needed] can use PayPal in their local markets to send money online.
PayPal revenues for Q1 2009 were $643 million, up 11 percent year over year. 42 percent of revenues in Q1 2009 were from international markets. PayPal’s Total Payment Volume (TPV), the total value of transactions in Q1 2009 was nearly $16 billion, up 10 percent year over year.
In 2008, PayPal’s TPV off eBay exceeded volume on eBay for the first time. PayPal’s Total Payment Volume in 2008 was $60 billion, representing nearly 9 percent of global e-commerce and 15 percent of US e-commerce.
At an analyst day on March 11, 2009, eBay CEO John Donahoe announced that PayPal could be a larger driver of revenue than the eBay marketplaces business. RIM (now BlackBerry) announced that PayPal will be the only payment mechanism for its BlackBerry App World (now BlackBerry World), which launched on April 1, 2009. However, by April 2011 RIM started offering two other options: credit card payment and mobile carrier billing (using the Bango Payment system).
PayPal launched Student Accounts for teens in August 2009, allowing parents to set up a student account, transfer money into it, and obtain a debit card for student use. The program provides tools to teach teens how to spend money wisely and take responsibility for their actions.
In November 2009, PayPal opened its platform, allowing other services to get access to its code and to use its infrastructure in order to enable peer-to-peer online transactions.