PayPal Ends ’05 with a 40% Jump in Traffic As Accounts Boom

Internet payments processor PayPal Inc. saw its transaction volume grow 40% in 2005's fourth quarter over the year-ago period, to 139.7 million transactions, according to figures released yesterday by parent company eBay Inc. The processor's fourth-quarter volume, which included holiday activity, was also up 19% over third-quarter traffic. Dollar volume reached $8.1 billion in the quarter, up 45% over the year-ago quarter. PayPal's average ticket remained relatively unchanged at $58.08. Transaction activity as reported by eBay does not include the gateway business PayPal acquired last fall from VeriSign Inc. (Digital Transactions News, Oct. 10, 2005). Meanwhile, PayPal boosted its active account base fully 39% during the year to 28.1 million. Its total accounts now stand at 96.2 million, up from 63.8 million at the end of 2004. An active account is one that sent or received at least one payment through PayPal during the period. This makes PayPal one of the largest payment marks in terms of accounts. PayPal remains heavily dependent on auction traffic on eBay, with the online auctioneer's marketplace accounting for 69% of the San Jose, Calif.-based processor's dollar volume, compared to 71% at the end of 2004. This is despite efforts PayPal has made to move into off-eBay markets for transaction processing, including general Internet retailing. Still, PayPal apparently improved its margin on processing, posting a revenue rate of 3.67% on transactions against an expense rate of 1.09%, for a 258-basis-point spread. This compares to 230 basis points in the year-ago quarter and 249 points in the third quarter. The company's loss rate jumped nine basis points, to 0.33%, from the third quarter, but was little changed from the result posted in the last quarter of 2004.