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Sun May 15 2011 20:42:10

PayPal and Visa Face off in Battle for Digital Wallet

By: Ina Steiner

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PaymentsViews wrote about CEO John Donahoe's presentation at eBay's 2009 analyst day in which he stated the importance of PayPal to the company. "Just as there are leaders for each retail segment offline (e.g. Wal-Mart, Nordstrom), there are multiple winners online. Yet when it comes to Internet payments, he anticipates that there will be only one winner and that PayPal will dominate."

PayPal is very well established, and, thanks to its open platform, many companies are using PayPal in the applications and websites they are building. But I remain skeptical that just one company will own the digital wallet - after all, there are many ways to pay at point-of-sale with a traditional wallet (cash, check, credit cards, debit cards, gift cards and department store charge cards). Recent moves by established financial services firms such as Visa add to my skepticism.

In real-life, a wallet can hold many forms of payment, and payment method is often contextual. Pay for a pack of gum with cash, a gym membership with a credit card, a utility bill with a check (though increasingly with an online bill-payment service).

With a digital wallet - which can be accessed from a computer, tablet or mobile device - I believe there will also be many ways to fund online, offline and mobile purchases - debit cards, credit cards, echecks, online payment services, and other options. And the payment method will also  be contextual with the digital wallet, which makes it very easy for retailers to tie payments into loyalty programs, as Starbucks is now doing with mobile payments at the cash register.

PayPal faces lots of competition from established global financial firms including credit card companies; Internet giants Google and Amazon; and start-ups; along with new technology, such as NFC chips. Keep a special eye on these players:

- Facebook, which created a subsidiary called Facebook Payments and is laying the groundwork for what could become a platform that extends beyond processing of virtual goods and developer and ad payments.

- American Express, which has launched a payments platform called Serve: "consumers can make purchases and person-to-person (P2P) payments online (serve.com), via mobile phones, and at millions of merchants who accept American Express cards. Serve unifies multiple payment options into a single account that can be funded from a bank account, debit, credit or charge card, or by receiving money from another Serve account."

- Visa, which just announced it too would be going after the digital wallet. Visa brings a formidable set of assets to the table - in its press release, Visa said it is developing next generation services by integrating VisaNet, its global processing network, with leading credit, debit, prepaid and commercial product platforms, new capabilities it has acquired through its subsidiaries CyberSource, Authorize.net and PlaySpan, and the unique expertise and services of key commercial partners.

Much of PayPal's current success came from its decision to open up its platform to third-party developers, and last October, Visa too has opened its payments network to independent developers.

PayPal felt compelled to respond to Visa's news through a post in the PayPal blog by Sam Shrauger, Vice President of Global Product and Experience: "While other companies are following PayPal's business model, we're already light years ahead. More than 98 million people around the world have already trusted us with their digital wallets."

PayPal is a major player in ecommerce as well as online and mobile applications. And research conducted by GfK found PayPal the number one trusted brand in mobile payments, beating out both established financial brands like Visa and MasterCard, as well as mobile brands such as Nokia and Apple, according to this recent PayPal blog post.

But eBay's CEO has failed to convince me it will be THE winner in Internet payments. Consumers value choice - the more ways to pay, the better for consumers - and for merchants.

A true "digital wallet" will integrate with all viable payment methods so consumers can continue to choose how to pay depending on the context of the transaction.




Comments (33) | Permalink

Readers Comments

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Tony DeLuca

Sun May 15 21:13:43 2011

Pride comes before the fall, JD. I'm betting the competition is going to take a big bite out of PayPal's lunch.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Nathalie Girard
Web Site

Sun May 15 23:50:57 2011

In may countries, including Canada, Paypal is currently the only option for e-payments (apart from our online banking, which works for Canadians only).

So, Paypal is the choice, by default, not because we like using them, but because we have no other alternatives at this point.

If other companies can persuade our Canadian Central Bank to let them in to do business, I know a lot of Canadians who would be thrilled to use anything else other than Paypal to process online payments.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Smitty This user has validated their user name.

Sun May 15 23:52:33 2011

As Phillip Cohen has long pointed out and I have always agreed with, whenever the big boys put the squeeze on PP, they will be hurting.

It look like that is starting to happen.

PP has to negotiate with Visa, Mastercard, Amex etc for the rate on their merchant account. When those big guns decide to do so, they can throw PP under the bus.

In the past we have seen some big number valuations for PP. Now that the real powers that be have started to make their move, I expect to see much lower numbers.

Smitty

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Patricia This user has validated their user name.

Mon May 16 00:40:11 2011

....serious competition...it couldn't have come at a better time!  ;-)

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

This user has validated their user name. by: Philip Cohen
Web Site

Mon May 16 01:06:26 2011

I look forward to the contest—with great pleasure ...

Enron / eBay / PayPal / Donahoe: Dead Men Walking.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Rich

Mon May 16 03:15:22 2011

If Paypal really has 98 million users alrready; then I doubt they'll have any serious competition for many years.  I wouldn't call Amazon competition because Amazon simply uses credit cards. Amazon hurts Ebay's growth though because Amazon has lower prices overall than Ebay due to Ebay raising fees every year, so Amazon does hurt Paypal's growth.  The only scenario I see that could impact Paypal would be if Amazon or Google were to surprise Ebay and open their own used/collectible site and then to reject Paypal as a choice

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: another side of the coin

Mon May 16 04:21:55 2011

Well JD you have ticked off so many of your customers, meaning sellers who were also buyers. Sellers getting away from eBay will look for ANY other payment service other than Paypal as both a seller and buyer. Nobody likes to be FORCED into using only Paypal. Had you treated your customers fairly, we would have been loyal and touted Paypal to all our friends and family just like we use to with eBay. I believe this is the biggest misstep, and where Visa and others will gain ground over Paypal.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

This user has validated their user name. by: Philip Cohen

Mon May 16 04:39:37 2011

Actually, I don’t think that PreyPal gets to negotiate directly with the credit card processors; Visa/Mastercard are aggregating tools of their participating retail bank partners. It’s the merchant’s retail bank that actually manages the merchant’s account. The setting of the fee that PayPal pays its bank would be by negotiation with its bank which, I believe, is GE Money Bank (From what I understand of GE Money Bank, it and PreyPal are good bedfellows and are good substitutes for the loan sharks of yesteryear.)

That said, PayPal would have to be one of the biggest, if not the biggest, “merchant” accounts on the planet and therefore they would be a very valuable customer to GE Money Bank; so you can bet that PayPal is paying even less than the usually lowest merchant fee of about 0.9%.

My understanding is that the credit card processors do not accept any transaction risk; they simply aggregate the transactions for the retail bank at each end of each transaction, and so their fee per transaction to the (payee only?) bank is nominal (30c?).

It is the responsibility of the retail bank to approve purchases and assess the risk of the bank’s exposure to the user (payer or payee), and set a credit purchase commission rate for each merchant, that usually ranges between 0.9% and 2.9% depending on the assessed risk/value of the merchant account.

Notwithstanding that PayPal originated the idea of using an email address as a user identifier for online transactions, PayPal is still no more than a parasite on the existing system. They make their money by, as a very large credit card merchant, buying the service at the lowest possible rate from GE Money Bank and reselling that same service to their users for 2.9%+30c. And that is all well and good, but the real problem with PayPal is their inability to effectively assess the risk of users and the almost complete lack of any fair transaction mediation; and there’s nothing that they can ever do about the former and little that they want to do about the latter.

Outside of PayPal’s mandated use on the now Donahoe-devastated, ever-shrinking eBay Marketplace, “the banks”, via their partners Visa/Mastercard, will eventually bury PayPal. There is nothing surer than the sun will rise in the morning. “Chairman Ho” is seriously delusional if he truly thinks that PayPal will continue to be eBay’s savior in the long term. If I was him I would be trying to offload PayPal to those same participating retail banks (who could actually run it professionally) while it still has some value; of course, the trouble for eBay would then be that the banks would possibly not want to deal with many of eBay’s/PayPal’s merchants.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Dan

Mon May 16 06:22:39 2011

eBay has never innovated anything...so if you're waiting for a digital wallet, asking eBay to do it is like asking a corpse to lead the way.  

A small nimble company is the one that will achieve this, not large monopolies.  It is unfortunate these companies have slammed small business.  In doing so, they have slammed themselves.

With respect to "innovation", they are losers.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: John

Mon May 16 07:16:45 2011

All I know is I do business with the companies that treat me the best....eBay has not so I do no business with them what so ever. Their affiliates either which include pp....If anyone asks me I make every attempt to differ them away from eBay and pp.

When a company so openly bites the hand that feeds them, the only energy and effort I put into addressing that company is to take business away from them as much as possible.

I purchase on Amazon, and I do so with CC

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

This user has validated their user name. by: Anonymous Annie

Mon May 16 07:22:50 2011

How long before PayPal is subject to the same banking regulations as others?

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Mary Doubtfire

Mon May 16 09:26:31 2011

''Sellers getting away from eBay will look for ANY other payment service other than Paypal as both a seller and buyer. Nobody likes to be FORCED into using only Paypal. Had you treated your customers fairly, we would have been loyal and touted Paypal to all our friends and family just like we use to with eBay. I believe this is the biggest misstep, and where Visa and others will gain ground over Paypal.''

Exactly! I'll admit that upon first opening my web store, I used Paypal. However, within a year I found that I could actually afford a real cc merchant account. Even with the minimums and the small monthly fee, my volume was large enough that it made more economic sense to abandon Paypal.

It may be hypocritical of me to be this way (especially since I was also guilty of having a non-ebay store that only offered paypal) however, when I stumble upon a non-eBay merchant who ONLY offers paypal, I generally keep moving on.

Nothing personal against the merchant (after all, everyone needs to start somewhere) it's just that I loathe paypal SO MUCH that I refuse to process my transaction through them.

Somehow, I get the feeling that I'm not alone with regard to that. In spite of their boastful claims that paypal is the ''safest'' or the ''favorite'' way to pay, I can think of no other company that is so reviled and despised within the community of small sellers.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Dman

Mon May 16 09:41:03 2011

I only have Paypal because I sell on Ebay. Bottom line, point blank, end of story.

If Ebay kills my Ebay store with their stupid policies, then I will never use Paypal again, and they will never make another dime off of the $100K+ in transactions we make each year.

I’ve have already signed up with American Express, I’ll be doing the same Visa and I’m already using MoneyBookers.  I believe the more the better, as it should improve customer service.  Hopefully it will one day end the knee-jerk reaction Paypal has to giving my hard earned money back buyers without a careful examination of the facts.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Stefano Neis
Web Site

Mon May 16 12:50:17 2011

If Visa or Master-card follows through, I will drop all my paypal links on all 490,000+ listings we have online & replace them with one of those.

Too many buyers tell me how much they ''dislike'' paypal..enough to convince me that an immediate switch from Paypal to an established Credit Card company will have a dramatic negative effect on paypal.

Much more so than even the Ebay crew thinks it will have.

It will also allow all those buyers & sellers alike who have gone from being pro-Ebay to anti-Ebay in the last five years , to vent their anger with some action that will hurt Paypal/Ebay's bottom line.

Effecting Paypal is now the only real way that Ebay, Inc. will listen to consumers again.

I look forward to Visa entering the online payment offerings. Just don't mess it up....

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Bigper

Mon May 16 13:38:12 2011

To the Canadian sellers who feel they are stuck with Paypal we recently switched to credit card services provided by Costco. Works great and we get the funds in our account the next day not 3-4 days later. A good programmer should be able to seamless integrate it with your website using something like Asecurecart.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Charlie W.
Web Site

Mon May 16 14:01:24 2011

@Bigper: Same here! I dropped PayPal from my website and added the Costco (Elavon) processing. Transaction fees are lower than PayPal and I save money every month. From time to time, I get my monthly Costco statement and I'll do some quick math and apply PayPal rates to the transactions. The results are no longer a surprise, but it's still fun to confirm that I'm saving and to see it add up month after month.

Of course the American Express rates are higher ... comparable to PayPal rates ... but fewer than 10% of my customers pay with Amex, so it's always an overall savings in the end.

It's been over a year since I switched, and during that time, only one customer has ever commented that they noticed I no longer used PayPal. It was clearly an observation and not a complaint.

Customers appear to be more willing to use their credit card, when previously, a few customers resisted (and mildly complained) that PayPal was my only option.

It may not be the right move for everyone, but it was right for us and it continues to pay off month after month.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

This user has validated their user name. by: permacrisis

Mon May 16 14:02:16 2011

If visa really wants this to work they should launch a person-to-person marketplace to go with it.

They have the advantage of REAL ID verification technology and REAL pattern recognition. Talk about Light Years Ahead!

Can't believe PP even used that phrase. How many of their '98 million users' are involuntary captives!

We'll eventually find out.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Eric Bay

Mon May 16 16:56:49 2011

Visa with one trillion in transactions, will show PayPal with one billion in transactions, how it is done in the real world.

Visa, everywhere John Donahoe's PayPal wants to be.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Mike

Mon May 16 19:31:35 2011

eBay has grown so far from the individual member to member trading community that it once was, now it is a meglo-monster chasing any way to make a quick buck, I feel that the acquisition of paypal and subsequent forcing members to accept paypal has contributed to the downfall. As soon as Visa rolls out their product, I will dump Paypal. I dont want to put another cent into eBays greedy pockets.

PayPal and Visa Face off in Battle for Digital Wallet   PayPal and Visa Face off in Battle for Digital Wallet

by: Mike

Mon May 16 19:31:46 2011

eBay has grown so far from the individual member to member trading community that it once was, now it is a meglo-monster chasing any way to make a quick buck, I feel that the acquisition of paypal and subsequent forcing members to accept paypal has contributed to the downfall. As soon as Visa rolls out their product, I will dump Paypal. I dont want to put another cent into eBays greedy pockets.

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