PayPal Continues to Rack up Double-Digit Growth in Accounts

PayPal Inc. may have made headlines last week with its intermittent outages, but third-quarter numbers released this week by its parent company, Internet auction kingpin eBay Inc., show the online payments processor racking up significant growth in accounts, transactions, and dollar volume, while continuing to chop fraud losses. San Jose, Calif.-based PayPal registered a 13% increase in its worldwide account base, to 56.7 million accounts, of which 17.4 million are active, compared to 15.5 million in second quarter. Compared to the year-ago period, total accounts are up 61% while active accounts have grown 55%. PayPal considers an account active if it sends or receives at least one transaction in the quarter. At the same time, the company' transaction volume grew 7% in the three-month period ended Sept. 30, to 83.4 million transactions, reversing a 2% dip in transactions sustained in the second quarter. Transactions are up 45% over the third quarter of 2003. Dollar volume processed also increased 7%, to $4.64 billion, in the third quarter, up 52% over the same quarter a year ago. The company reports that some 70% of its payment volume is derived from online auction sales, a percentage that has held steady quarter after quarter for at least the past year. Given total eBay merchandise sales of $8.31 billion in the third quarter, PayPal now accounts for 39% of eBay sales, up from 35% a year ago. PayPal's revenue rate, or the average percentage of each sale it receives in revenue, was 3.59% in the third quarter. Its loss rate, meanwhile, declined to 0.22% of payments, despite the growth in volume. Losses were as high as 0.31% as recently as the fourth quarter of last year, a period when heavy holiday-season activity tends to spike losses owing to fraud. PayPal struggled last week with a coding error that rendered its Web site unavailable at times to buyers and sellers (Digital Transactions News, Oct. 12 and Oct. 14). The outages, which affected online retailers, auction activity, and the ability of PayPal debit card holders to withdraw cash, continued for six days before the company was able to restore normal service.