Services Provided by PayPal.com

Marketing PayPal.com

The History of PayPal.com

PayPal.com - The Competition

The Cast of Characters

A Brief History of the Credit Card

Resources

PayPal.com is a web-based payment service created by Confinity, Inc., which enables consumers to email money via their PC or PDA (Personal Digital Assistant, exemplified by the Palm Pilot™).  Recently the service has added Web-enabled mobile phone access. Through a secure application, people are able to send money from an existing credit card or bank account to any e-mail address in the world.  If the recipient is not registered with PayPal.com, s/he receives an e-mail message alert that the recipient has money waiting to be collected, and the recipient then signs up with PayPal.com.  The basic service is free.

     PayPal.com has received nothing but highest recommendations from various media, including ForbesMagazine, Time, the Wall Street Journal, and the New York Times.  It has been adopted by eBay (in addition to Billpoint) as a reliable broker for financial transactions.  Even the founder of Verifone and key financial backer of PayPal.com, Bill Melton, comments "Verifone first captured the market for credit card readers, but we hit a wall because only merchants would buy them. PayPal blasts through that wall, enabling every handheld consumer to own a credit card terminal in their pocket."ⁱ   PayPal.com has given the principal of viral marketing a slightly better connotation; one supposes receiving cash makes being compelled to sign up for a service less distasteful.  In addition, the site calls itself the first truly M-commerce (or mobile e-commerce) application.ⁱⁱ   There are other claims about the benefits of using PayPal.com, including the ability to order expresso through a PayPal-powered menu five minutes before arriving at the store, and so forth.

    Services provided by PayPal.com are, basically, sending money and requesting money (e-mailing someone a "bill").  Besides U. S. Dollars, funds are accepted in the following currencies

    Security and privacy information is clearly labeled and easily available through PayPal.com's home page. TRUSTe, an independent, non-profit organization, has licensed PayPal.com.  This license assures site users that the utmost in privacy is guaranteed. SafeWeb Remote Banking Insurance from Travelers Insurance™ is used to provide $100,000 insurance to each account, protecting the PayPal.com user from unauthorized or fraudulent withdrawals.  With this insurance, the account holder is in a situation that seems equal to the FDIC.  Dr. Martin Hellman, the inventor of public key cryptography, who sits on the Confinity's Board of Advisors, with the assistance of Dr. Dan Boneh, a Stanford computer science professor, designed the security system.  PayPal.com includes the following paragraphs on its security information page:
 

    PayPal.com offers two levels of service.  The Personal Account features the "Core Features": send money, request money, auction tools, money market, international payments, $100,000 insurance, and email-based customer service.  The Premier Account includes the above Core Features and also features referral bonuses, Web Accept, Instant Purchase for Auctions, Auto-Sweep (daily sweep of funds into primary bank account), unlimited credit payments, downloadable transaction history, mass payments, special promotions, and 24/7 call-center customer service.  Premier and Business Account members can also get a $5 referral bonus by putting the PayPal.com logo their web sites.

    PayPal.com's primary income comes from interest income on cash balances.   As services have expanded in recent months, PayPal.com began to charge fees (at 1.2% quite modest compared with 4%-7% charged by most credit card companies to participating merchants).  Some of the features under the Premier Account level also include similarly low fees, but, for example, a deposit made to PayPal.com and then swept into a bank account costs a total of 2.19%, compared with a total of a minimum of 5% using the most reasonable credit card companies and bank systems.ⁱⁱⁱ
 

Marketing of PayPal.com is done primarily through viral methods, that is, the payee cannot receive money unless s/he signs up for the service, which is free.  When PayPal.com first started, it gave people who signed up $10 from PayPal.com and $20 from X.com, as well as a $10 bonus for each friend who is signed up, up to $1000.^iv    Now the user gets $5 for signing up, and $5 for each new person who signs up and uses the virus carrier's e-mail as a reference.  The higher rates were justified in the beginning of the enterprise; in one of those breath-taking erroneous predictions laughed at later "Joel Friedman, banking expert at Anderson Consulting, says it will be hard to produce enough volume."^v

    The first marketing stunt was conducted by Peter Thiel, Chief Executive Officer of Confinity, the developer of PayPal.com.  July 22, 1999, Nokia Ventures, PayPal.com's leading start-up investor, wired $3 Million to Thiel while he was at a restaurant.  At the November 16, 1999, launch Thiel again sat in a restaurant and beamed his part of the bill to a friend sitting across the table with his Palm Pilot.  The friend's Palm Pilot registered the receipt of the money, but Thiel could have used a friend's e-mail address instead.  Thiel showed up on CNN-FN's Digital Jam on November 29, 1999, demonstrating his application in action and defending against the jibes of "funny money."^vi

    The climax of the opening push for PayPal.com came with the release of the Palm Organizer version of its software December 17.  On that date
 

        The History of PayPal.com is one that makes Moore's Law seem pokey.  In late 1998 Peter Thiel, a former securities lawyer and options trader, created Confinity with a group of friends, mostly former classmates and professors from Stanford University.  Thiel was running his own private equity fund, and he agreed to finance Max Levchin, a software developer who, having "sold his own start-up, wanted to develop a secure software system that allowed people to transfer money to other individuals using mobile electronic devices."^viii

    The first investors included Dr. Martin Hellman, professor emeritus of engineering from Stanford University.  On July 22, 1999, Nokia Ventures beamed $3 million to Confinity, and Deutsche Bank's contribution brought the total to $4.5 million.^ix   After the launch of the service November 16, 1999, Confinity soon picked up support from Idealab Capital Partners (a venture capital firm) and investment bank Goldman, Sachs & Co. who announced on January 20 that they had invested $23 million in PayPal.com.^x    At the end of February Pixo agreed to work with PayPal.com to provide new methods of transferring money over the Intenet via wireless phones.^xi   By May PayPal.com had raised another $100 million, and had 1.5 million account holders creating a daily throughput of $2 million.^xii

    Along the way, PayPal.com was named the primary online payment service on eBay, carrying nearly double the number of transactions as its nearest competitor by January 31.  X.com, an online bank led by Elon Musk, founder and chairman, and PayPal.com merged March 2, "creating the world's largest secure network for instant online payments."^xiii   PayPal.com kept its name as the money transfer service, but X.com was listed as the "parent."  In June the web site broke into PC Data Online's list of the Top 100 based on the number of unique visitors to a site.  The following table was compiled from monthly data available through PR Newswire Association, Inc.  November data will be available in mid-December.
 

Elon Musk, founder and chief executive of X.com stepped down in October, and he was replaced temporarily by William Harris, a director at Intuit.  It should be noticed that Intuit and X.com signed a 5-year cooperative agreement in early October.
 

Competitors to PayPal.com have been rated by CNET.com and by Forbesbest.com  CNET.com's reviews cover eMoneyMail, Ecount, payMe.com., and CheckFree Web Billing and Payment.  Their comments are in the chart below.
 
 

Company	The Good	The Bad	The Bottom Line
eMoneyMail	Delivers payments faster than the competition; additional security ensures money doesn't end up in the wrong hands.	Charges a service fee; requires too much personal info to register a checking account.	When speed is of the essence and money's no object, turn to eMoneyMail.  But for a free, more comprehensive service, go with PayPal.
Ecount	Lets you specify the day you want money to arrive; provides payees with an online account to spend money on the Web; 24/7 toll-free customer support.	Takes a long time to activate your account; deposits payments only to credit card accounts; complicated sign-up process.	If your pals spend lots of cash online, Ecount's the best way to send them gift money.  It's too inconvenient for most regular payments, though.
payMe.com	Deposits money in credit card and checking accounts; no limit to the amount you can send overall.	Takes seven business days for payments to show up; lacks a specialized form to pay for online auction bids.	payMe.com's easy to use, but it simply takes too long to make payments.  Until it shortens this lag time, use PayPal instead.
CheckFree Web Billing and Payment	Pays anyone and retrieves e-bills from a limited number of payees; won't reveal private details of your purchases; exports transactions to Quicken and Microsoft Money.	Pricey.  The less expensive, Yahoo-branded verion of CheckFree instead.	CheckFree Web Billing and Payment - available at numerous banks, brokerage houses, and even a few portals - gives you the most flexibility without sacrificing your privacy.  Right now it's the clear choice for anyone who wants to pay bills online.

 Forbesbest.com links its reviewed sites to the company's web pages.  They rank several as "Best of the Web," and lists PayPal.com as "Forbes' Favorite."  The list is included below.  (Note:  a visit to PayPlace.com discloses an Important Announcement that contains this sobering paragraph
 

Cast of Characters

Peter Thiel - former securities lawyer and options trader, created Confinity in 1998.  In March 1998, with David Sacks, he published a commentary in the Asian Wall Street Journal taking issue with the International Monetary Fund's approach to Asia's problem economies.^xiv  They excoriated the IMF, comparing what they describe as bad regulatory practices similar to those used by the more derelect Asian governments.   Both men had been editors of the Stanford Review, the campus' conservative student newspaper, when they were enrolled, and in February 15, 1996, they lambasted and ridiculed Stanford's curriculum by contributing "The Cost of Multiculturalism" to an Open Forum in the San Francisco Chronicle.^xv   In advance of the release of The Diversity Myth:  Multiculturalism and the Politics of Intolerance at Stanford, written while they were at the conservative think-tank Independent Institute, they submitted a Wall Street Journal piece that aroused the ire of Stanford University President Gerhard Casper and Provost Condoleezza Rice.^xvi

Elon Musk - The son of a South African engineer and a Canadian model, Musk left home at 17 to attend Queen's University in Ontario because he was about to be drafted by the South African army.  He soon transferred to the University of Pennsylvania on scholarship, and graduated from Wharton with an undergraduate degree in business.  He lasted two days as a graduate student in physics before dropping out to create Zip2.  A self-taught programmer, he sold Zip2 to Compaq in April 1999 for $307 million (he and his brother owned 12% of the stock), and by August of the same year started up X.com.^xvii
 

Credit Cards have been around since the 1920s when individual merchants issued cards for purchases.  The first universal card was the Diners' Club, Inc., issued in 1950.  With this card, customers were charged an annual usage fee and employers were charged 4-7% of total billings.  The American Express card debuted in 1958.  The Bank of America (then only in California) issued the first bank card a year afterward, and it was licensed in other states starting in 1966.  Futurists as far back as the late 1940s predicted soon Americans would be a cash-less society in two years from whatever year the prediction appeared, and journalists would travel through a city, testing how far they could get with no coins or dollars and writing up the results.  Americans seem unwilling to part with cash that easily, but services such as PayPal.com seem to accelerate the possibility of cashlessness.
 

Resources

  ⁱ"Beaming Money by Email is the Web's Next Killer App," PR Newswire, November 16, 1999.
  ⁱⁱIbid.
  ⁱⁱⁱAuthor's experience as Treasurer of the International Alliance for Women in Music.
  ^ivChristine Dugas, USA TODAY, February 1, 2000.
  ^vIbid.
  ^viCNN-FN, Digital Jam, November 29, 1999, 8:14 p.m. EST (transcript).
  ^vii"'Scotty' Beams a Surprise to Thousands," PR Newswire, December 17, 1999.
  ^viiiTim Jackson, "When cash no longer counts," Financial Times (London), May 9, 2000, p. 22.
  ^ixScott Herhold, San Jose Mercury News, July 22, 1999.
  ^xDebora Vrana, "Idealab Partners to Invest in PayPal.com," Los Angeles Times, January 20, 2000, p. C2.
  ^xi"Pixo - PayPal.com," Phillips Business Information, Inc., Vol. 4, No. 34, February 22, 2000.
  ^xiiJackson, op.cit.
  ^xiii"X.com and PayPal.com Announce Merger Plans," PR Newswire, March 2, 2000.
  ^xivDavid Sacks and Peter Thiel, "Side Effects of IMF's Cures are More of the Same Ills," Asian Wall Street Journal, March 16, 1998, A16.
  ^xvMary Louise Roberts, Letter to the Editor, San Francisco Chronicle, February 24, 1996, p. A16.
  ^xviBill Workman, "Stanford Chief Hits Wall Street Journal Piece," San Francisco Chronicle, October 11, 1995, p. A13.
  ^xviiMark Gimein, "High tech's new 'It Guy,'" The Ottawa Citizen, August 23, 1999, p. D1.