Founded in 1998, PayPal offers a straightforward service for
making and receiving payments over the internet.
Its popularity among traders on internet auctions – both
individuals and small businesses – persuaded market leader eBay to
pay $1.5 billion to buy the Mountain View, California-based company
in July 2002. At the time, PayPal reaped 60% of its business from
eBay users alone.
The system works by establishing PayPal as a trusted
intermediary with which both payer and payee have an account. This
ensures that sensitive information, such as credit card or bank
account numbers, are not disclosed to anyone other than PayPal.
Anyone can sign up with PayPal to send payments to anyone with
an email address. The next level of membership lets individuals
send payments and receive any type of payment, including credit
card payments. Businesses can also sign up with PayPal to send and
receive payments in their business name. PayPal makes most of its
revenue by charging a commission on payments.
Businesses can also register for PayPal's seller protection
scheme which can insure an internet businesses against chargebacks
incurred for fraudulent transactions.
Until last year, only US based companies and individuals could
register with PayPal as payees under the system, while businesses
and individuals from the US and 38 countries worldwide – including
the UK – could register as payers. It now claims more than 35
million users worldwide.
A stumbling block for its European expansion, according to the
company, was that Europe has no equivalent of the authentication
verification service (AVS) used in the US to check a user's credit
card information against an address.
In October last year, PayPal launched a UK web site which
offered seller protection services in the UK only. When the new
subsidiary launches, both seller and buyer protections will be
available, as they are to US buyers and sellers.
EBay began advising its customers via e-mail last week that
PayPal Europe Ltd. should begin operating in February 2004, subject
to authorisation from the UK's Financial Services Authority.
The launch will be good news for eBay on two fronts: it will
benefit from PayPal transactions in Europe, but is also likely to
see an increase in European use of its auction site.
PayPal already has European headquarters in Dublin dealing with
customer service and fraud prevention, according to
Internetnews.com.
