(April 19, 2007) PayPal Inc. saw its transaction volume swell 19% in the first quarter, to 177 million payments, while its non-auction business expanded to 39% of all transactions in a performance widely credited with boosting parent eBay Inc.’s financial results for the period. News of the e-commerce transaction processor’s performance comes just as it has wrapped up a deal with Yahoo! Inc. that will allow businesses that are Yahoo! advertisers as well as PayPal accountholders to process payments at no charge through PayPal Express Checkout until the end of the year.

In its quarterly financial report released Wednesday, eBay revealed the processor added 13.3 million accounts in the first quarter to claim 143.3 million users, a 36% increase from the year-ago period. Some 35.7 million are active, up from 29.2 million a year ago. An active account is one that processes at least one PayPal transaction during the quarter. Dollar volume through the system ballooned 30%, to $11.4 billion. Both transactions and dollar volume figures exclude PayPal’s e-commerce gateway business, which it acquired in 2005 from VeriSign Inc.

After a pause in the fourth quarter, PayPal resumed its progress in shifting volume toward Internet merchants and away from dependence on its parent company’s online auction marketplace. Merchant dollar volume increased 51%, and as a proportion of all payment volume was up three percentage points over the fourth quarter and six points over a year ago. In the fourth quarter, this ratio had declined slightly to 36% after a string of quarterly increases. Although it is the dominant payment method on eBay, PayPal in recent years has pursued online merchants and has steadily shifted share of transaction volume away from auction sellers.

Earlier this week, PayPal and Yahoo! unveiled a new service, called Yahoo! PayPal Checkout, that will place a blue shopping-cart icon next to the search results of merchants that use Yahoo! Sponsored Search as well as PayPal Express Checkout, a streamlined system that lets PayPal accountholders pay online merchants with three clicks. PayPal is allowing these merchants to process transactions at no charge until the end of the year. Normal pricing for Express Checkout payments is 1.9% plus 30 cents. Businesses will also receive a $100 credit from Yahoo! for search advertising.

The agreement is part of a deal the two Internet companies signed almost a year ago under which PayPal became the exclusive provider of Yahoo’s online wallet (Digital Transactions News, May 30, 2006). Yahoo! also agreed to promote PayPal. The latest deal is the second major promotion of Express Checkout PayPal has introduced in the last six months. In November, it launched a $100 million program that offered free shipping and cash rebates to shoppers who bought from sites that adopted the payment service (Digital Transactions News, Nov. 6, 2006).

The latest move by Yahoo! and PayPal is seen by some payments observers as a response to Google Inc., which launched its Checkout online-payments service last June and said in December it would process transactions for free through the end of 2007 (Digital Transactons News, Dec. 6, 2006). As with Google Checkout, the new PayPal-Yahoo! service exploits the desire of online shoppers to complete purchases at the same time as they get search results on particular products.