PayPal Seeks Higher Small Merchant Share with New Product

PayPal Inc.'s new payment technology for small and medium-sized merchants, introduced last week (Digital Transactions News, June 20), is aimed at boosting the online payment processor's market share with these merchants both on auction sites and through their own Web sites, PayPal executives say. The San Jose, Calif.-based company, a unit of online auction giant eBay Inc., derives more than two-thirds of its transaction volume from auction traffic, and has been for the past nine months aggressively pursuing Web-based merchants for non-auction payment processing. At the same time, it sees high potential both on and off eBay among sole proprietors and small businesses, where it says its market share currently is 27% and 2% respectively, in terms of online purchase volume. “The sole proprietor has always been PayPal's sweet spot,” says Dana C. Stalder, vice president for marketing and business operations at PayPal. “It has always been the most underserved and overpriced [market] historically by the [payment-processing] industry.” To attract smaller merchants, PayPal is now touting its Website Payments Pro package of processing services, a non-hosted system that promises to give even tiny merchants the benefits of a traditional merchant account while mixing in processing for PayPal accountholders. PayPal executives say the package cuts merchants' acceptance costs by 20 to 50 basis points, compared to a conventional merchant account, and increases conversion rates, as demonstrated in beta testing with online merchants. “We're driving 5% to 15% incremental sales for small merchants off eBay,” says Stephanie Tilenius, vice president and general manager for PayPal's merchant services business. Neither she nor Stalder will project how much higher the new product could push PayPal's penetration among sole proprietors (which PayPal defines as businesses doing up to $250,000 annually in sales) and among small businesses ($250,000 to $5 million annually). For customers without a PayPal account, Payments Pro includes both conventional card processing and a virtual terminal for phone and fax orders. The virtual terminal, according to the company, was the single most requested item by small merchants. “The merchant wants to close the sale while he has the customer on the phone,” says Stalder. For PayPal accountholders, the product includes a streamlined channel to and from PayPal's site. This last feature, called Express Checkout, allows accountholders to pay in three clicks, says Tilenius, down from seven. The package costs $20 monthly, with fees ranging from 2.2% plus 30 cents to 2.9% plus 30 cents. The monthly fee is waived until later this year. But merchants can opt for Express Checkout alone for no monthly fee and for a transaction rate of 1.9% plus 30 cents. This option, say PayPal executives, might appeal to larger retailers with established merchant accounts. To reach this broader universe of Internet merchants, PayPal has set up links to transaction gateways CyberSource Corp. and Retail Decisions U.S.A. Inc., and is just now completing an integration with merchant processor Paymentech L.P. Stalder says these processors sell PayPal as an additional payment mark. Despite its introduction of a virtual terminal, which could be equipped with a card swipe, PayPal is not interested in moving into processing transactions for physical-world merchants, Stalder says.