PayPal’s Small Bite of Physical Stored Value May Herald Bigger Things

In a move that could herald a thrust into the rapidly growing point-of-sale stored-value payments market, PayPal Inc. is processing prepaid accounts behind cafeteria payments for its own employees as well as for those of two other technology companies in Silicon Valley. For the past year, the online-payments processor, a unit of eBay Inc., has been handling stored-value accounts for PayPal and eBay employee use at its own headquarters cafeteria in San Jose, Calif. Since that program started, the company has added the employee cafeterias at Palm Inc. in Sunnyvale and Cisco Systems Inc., whose headquarters is also in San Jose. Some observers interpret the corporate-cafeteria program as an early sign that the processor, which has long insisted it is strictly focused on online payments, is starting to target the market for processing accounts used for physical-world payments, and specifically prepaid accounts that finance small-value point-of-sale payments. “Right now we're still focused on online sales, there's so much for us to do in that world,” a PayPal spokeswoman says. But she doesn't rule out the possibility that the cafeteria program could grow into something larger, particularly if the company were to receive interest from either merchants or acquirers. “It's possible, yes, certainly, we'd be open to that idea,” she says. “That [stored-value] market is interesting to us, and it's one we watch very closely. If companies want to work with us, we're happy to help set them up.” PayPal maintains prepaid accounts for its users as a funding mechanism for purchases online, but so far its foray into physical-world payments has been confined to its co-branded MasterCard debit card, which can be used at ATMs to withdraw cash from those funded accounts. Stored value aside, the company this summer launched a long-awaited initiative, including reduced seller fees, to process online, pay-as-you-go micropayments for a broad range of digital content (Digital Transactions News, Aug. 31). It has been processing payments for online song downloads since December 2003. In the cafeteria program, employees at each company fund the prepaid accounts, which are linked to the ID badges they use to pass through corporate security, with their personal PayPal accounts. The caterer managing the cafeteria is the merchant, paying PayPal's standard seller rates (1.9% plus 30 cents up to 2.9% plus 30 cents per transaction) whenever employees load their badge accounts and keeping track of funding levels by scanning the badges at the cash register. Employees fund or reload their accounts by visiting a page on the internal corporate Web site, entering a badge number and an amount, and clicking on a “fund it now” button. At that point, users are redirected to their accounts at PayPal. “It's not a huge initiative within [PayPal],” says the spokeswoman. “It just makes sense for employees to fund their badges this way.” The program is open to all badged employees of the three companies, though the user must have a PayPal account to participate. The spokeswoman was unable to say how many employees are participating across the three companies. As of Sept. 30, PayPal claimed 86.6 million total accountholders, of which 24.5 million were active users (at least one transaction per month).