PayPal Prepares for a Two-Phase Rollout of Its Virtual Debit Card

PayPal Inc. will start rolling out its so-called virtual debit card to “hundreds of thousands” of users some time this month in a process it expects to complete by the end of August, a spokesperson for the San Jose, Calif.-based unit of online auctioneer eBay Inc. tells Digital Transactions News. The product, which relies on software that generates one-time-only account numbers and is now being tested by PayPal employees, should be generally available to the online transaction processor's 105 million accountholders by year's end, the spokesperson says. The virtual debit card deducts funds from users' PayPal accounts and can be used at any Web merchant that accepts MasterCard, expanding PayPal's reach beyond those sites that accept PayPal. To make it work, the user downloads an application that becomes part of his computer's toolbar. When the user visits a MasterCard-accepting site, the application generates a prepopulated form for payment, including a one-time account number and one-time card-verification value, the three-digit number usually found to the right of the signature panel on the back of physical cards. The application relies on software from Orbiscom Inc., a New York-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. (Digital Transactions News, Aug. 31, 2004). One-time account numbers, also called proxy numbers, are seen by some as more secure for online buying, since they can't be re-used by fraudsters. PayPal's virtual debit card, indeed, “was developed through customer feedback,” the spokesperson says. “The one-time number was very attractive, and they'd like to be able to use PayPal in more places.” That wider acceptance is important to PayPal. The company for the past two years has been pushing to get its mark accepted by more online merchants, but still relies on auction sales from parent eBay and other such Internet marketplaces for about two-thirds of its transactions. Still, when asked why the product is associated with MasterCard and not Visa, the spokesperson would say only that “MasterCard had the features we were looking for?the whole package was right.” She would not give details of the arrangement. PayPal will collect debit interchange on each transaction, some of which it will pay to First Data Corp., which will process the transactions. Virtual debit transactions are handled as if they were signature-debit payments. The virtual card will debit the user's prepaid PayPal account first, but should this prove insufficient it will hit the user's checking account for any needed funds. The rollout taking place this month and next will involve some of the processor's most active users, the spokesperson says, and they will be asked to give even more feedback on the product to help shape it for the general rollout later in the year. The new product from PayPal comes as online processors and merchants confront an array of new Web-based payment services, the most high-profile of which is the much-anticipated launch last week of Google Checkout, a payment product from the Mountain View, Calif.-based online search giant that can be used on Internet retailer's sites and is widely seen as directly competitive with PayPal (Digital Transactions News, June 29).