Digital Transactions Authoritative, insightful and timely information for payments professionals
PayPal may be getting close to processing payments for online song downloads, but it's not likely to be moving more broadly into micropayments any time soon. The San Jose, Calif.-based payment-processing unit of online auctioneer eBay Inc. finished adding functionality to its system last month to handle song payments and is “very far along” in its talks with online music sellers, says Todd Pearson, managing director for merchant services at the company, in an interview with Digital Transactions News. He would not name the sellers, but adds the list of potential clients–which includes a diverse array of major companies like Apple Computer Corp. and Wal-Mart Stores Inc.?is not long. He will not predict when PayPal wil be able to announce its first deal, but says “there's strong interest” from vendors. PayPal announced in December its plans to enter the red-hot market for online music by slashing its merchant pricing from its ordinary rate of 2.9% plus 30 cents or 2.2% plus 30 cents to 2.5% plus 9 cents (Digital Transactions News, Dec. 8, 2003). The reduced pricing is available only on song downloads of $5 or less, and sellers must do at least 3,000 transactions a month. At the time, Pearson said PayPal expected to sign its first song vendor by the end of the year. In the intervening months, Pearson says, PayPal had to tweak its payment-processing system, which is suited to per-item purchases and invoicing, so that it could aggregate multiple songs into single transactions. Song downloads are typically priced at 99 cents each. The company wrapped up that technical work a month ago, Pearson says. Though PayPal is preparing to get into the online music market, however, Pearson isn't so sure the processor will be going further into micropayments for other content. Whereas PayPal can justify cutting its margins to accommodate music downloads, where the fast-growing popularity of the market gives the company valuable exposure, he says the jury's out on whether the company can afford to cut its pricing for other micropayment markets. “[Online music] is a highly visible marketplace where we can get a lot of credibility by showing up,” Pearson says. “Does that same proposition hold true for very small micromerchants? What's the value in slashing our margins for that sector? We haven't gotten our heads around that yet.” Six-year-old PayPal is still undergoing fast growth, Pearson says. In a presentation today at the Bank Administration Institute's TransPay trade show in Las Vegas, he said the company now boasts 45 million users, including both those who pay via PayPal and those who accept PayPal for payment, and is adding new users at a rate of 58,000 per day. PayPal's user base now equals more than one-third of all online buyers in the U.S., Pearson says.
