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San Jose, Calif.-based PayPal Inc. later this week will expand its five-store point-of-sale payments pilot with Home Depot to 51 stores, chiefly in the San Francisco Bay area, according to John Donahoe, chief executive of eBay Inc., PayPal’s parent company, and interim president of PayPal.
Speaking during a fourth-quarter conference call with analysts on Wednesday, Donahoe also said PayPal “will not skip a beat in managing the transition” of top management to a new president to replace Scott Thompson, who left PayPal earlier this month to take the chief executive post at Yahoo Inc. Questioned by an analyst about the strength of PayPal’s management bench in the light of recent key defections in addition to Thompson, Donahoe bristled. “What I’m certain of is PayPal’s business has never been stronger and the leadership team has never been stronger,” he said.
PayPal’s operating results for the quarter benefited from a federal debit card interchange cap that took effect Oct. 1 to implement the Durbin Amendment, which placed the restriction on issuers with $10 billion or more in assets. For many transactions, PayPal acts as merchant, absorbing interchange and other expenses and then pricing those costs into its fees to users. The processor’s transaction expense, expressed as a percentage of overall dollar volume, dipped markedly to 1.04%, fully 10 basis points below the expense rate in the third quarter. Bob Swan, eBay’s chief financial officer, was blunt about where the savings came from. “Lower transaction expense came as a result of the Durbin Amendment,” he said during the call.
The expansion of the Home Depot pilot will be followed later in the year by pilots with other “national” retailers, Donahoe said, though it’s not likely the point-of-sale test will contribute significantly to the $7 billion PayPal is projecting for mobile payments volume in 2012, up from $4 billion last year. News of PayPal’s five-store test with Home Depot, which apparently has been in progress for about six months, emerged only a little more than a week ago. “I’m very excited about this,” Donahoe said about the Home Depot and future pilots, which for the first time are bringing e-commerce processor PayPal to major merchants’ checkout lanes.
PayPal users can pay at the cash register either with a card PayPal has introduced or by entering their mobile phone number and a PIN. PayPal has struck deals with terminal maker Ingenico and POS middleware vendor AJB Software Design to help streamline PayPal transactions.
Donahoe characterized 2012 as a “year of learning” for PayPal in physical-world payments, with 2013 projected to be a “year of scaling.”
PayPal, which hit the 100-million mark in active accounts in the second quarter last year, claimed 106.3 million at the end of 2011, up from 103 million three months earlier. It processed 548.1 million transactions in the fourth quarter, a 30% jump from the 421.1 million it handled in the same quarter of 2010. This traffic includes activity on Bill Me Later and on Zong, a mobile-payments player eBay acquired last year.
Dollar volume was $33.4 billion in the quarter, 24% higher year over year, while so-called merchant services—PayPal’s term for its processing business off-eBay—logged nearly two-thirds of that total.
Net chargeoffs for Bill Me Later, which grants transactional credit for online purchases, continued to moderate, finishing at 4.4% in the quarter, down from 6.1% in the year-ago period.
