Exclusive Interview for ECJ with Senior Director of Merchant Services at PayPal

Part 1

PayPal, a global leader in online payment solutions, has been on the market of electronic payments since 1998.  In 2002 it was acquired by eBay, an online auction and shopping giant. Due to its tremendous popularity and overall success, PayPal has been in the center of overwhelming attention from online shoppers, auction participants and electronic money transfer users. As any celebrity, PayPal had its share of praise as well as criticism. To clarify some questions and to see what the company is up to these days, eCommerce Journal conducted an exclusive internet interview with PayPal's senior director of merchant services, Cliff Hopkins.

Marianna: First of all, I would like to thank you for giving us this opportunity to ask you some questions. All of the eCommerce Journal readers have been anticipating this interview!

There was a lot of controversy when eBay acquired PayPal. Many PayPal users felt that the system will be very dependant and will only serve eBay's needs. What was different in PayPal's development before its acquisition by eBay? If that merger did not occur, what direction would PayPal take? 

Cliff: While eBay's acquisition of PayPal was controversial at the time, it is now recognized as one of the most successful acquisitions in the Internet industry.  That's because the two businesses were incredibly complementary.  PayPal made payments on eBay much faster, easier and safer than they were before, and the velocity of trade on eBay improved exponentially.   And eBay provided PayPal with a ready-made market of millions of buyers and sellers that needed fast, easy and safe online payments.

After the acquisition, integration of PayPal on eBay.com was the top priority, and both businesses experienced tremendous growth.   We then focused on integration of PayPal on the eBay marketplaces around the world.  All along, eBay supported the growth of PayPal off of the Marketplaces business, even though a lot of people outside of the company didn't see merchant services as complementary to eBay.   Today, PayPal is focused on providing customers with a safe, easy way to pay on eBay marketplaces around the world, as well as increasing acceptance of PayPal on e-commerce sites across the Web.

Marianna: Aside from eBay sellers and buyers, what are the major target markets PayPal is pursuing to ensure its growth? What other markets would PayPal like to enter?

Cliff: PayPal is focused on providing safe, easy payments for online businesses of all sizes - from some of the largest e-commerce sites on the Web, to individual sellers on eBay.  eBay continues to be a significant focus for our business, but PayPal's merchant services business is growing rapidly at a rate of nearly 66% year over year.

PayPal is currently available in 190 markets around the world.  We'll continue to build out our functionality in these markets and expand to new ones in the coming years.  Stay tuned.

Marianna: Over the past several years many new on-line payment systems like WebMoney, e-gold and others emerged and successfully compete on the market. Their transaction fees are very often three times lower than those of PayPal. How would you comment on PayPal's decision to stay an "expensive" choice for on-line payments?

Cliff:  With our cost structure, user base, and fraud prevention expertise, PayPal brings tremendous value to online merchants. 

With PayPal, online merchants can accept credit cards, bank account payments, and stored value payments - all through one system.  For merchants of all sizes, PayPal is typically less expensive than traditional merchant accounts. 

PayPal has a base of 149 million accounts worldwide who combined sent $47 billion in payments last year.  When merchants use PayPal , they have a ready-made base of buyers who prefer to use PayPal when they shop online.  Also, because PayPal has some of the most advanced fraud prevention technology and expertise in the industry, we help merchants drive down their fraud costs as well. 

Marianna: Fraud is the most prominent problem for any payment system. PayPal, in part due to its success and popularity, has been a popular target. What is the extent of damage the company experiences due to fraud?

Cliff: Fraud is an issue that we take very seriously.   To proactively detect and prevent fraud, PayPal maintains one of the industry's best fraud detection systems.  In addition, we have over two thousand agents that are dedicated to fraud detection and risk management.  This has led us to have one of the lowest fraud loss rates in the industry - 0.24%, or less than one quarter of one percent.

Marianna: It seems that the Anti-Fraud token introduced by PayPal was a welcome addition. As we know, PayPal vowed to deploy the token to between 200,000 and 300,000 of its users by the end of 2007. Has PayPal met that target and how popular the token is among PayPal users?

Cliff: The PayPal Security Key is great way for our customers to add an extra layer of protection to their accounts to defend against online identity theft and account takeover.  We haven't committed to distributing a specific number of the tokens but we are very happy with the adoption so far.  Currently, the PayPal Security Key is available to account holders in the United States, Germany and Australia.  The feedback we have received has been overwhelmingly positive, and we are evaluating introducing the device into other markets.

Marianna:  It is transparent through the media that business owners are more than concerned about eBay's new policy of holding PayPal funds on "high-risk" transactions for up to 21 days. How will the "high risk" transactions be determined? What are the chances that eBay sellers will start accepting other payment methods which do not impose such restrictions? 

Cliff: I believe what you're referencing is eBay's recently announced safer payments initiative.  As part of this initiative eBay and PayPal will, in certain situations, delay release of the funds paid via PayPal to the seller for up to 21 days.  Only a very small number of sellers will be affected by eBay holds.  Sellers who may experience these payment holds are newly registered sellers, sellers with a track record (more than 5%) of poor buyer dissatisfaction in the last 30 days, or sellers with a feedback score of less than 100.  Payments also may be held for items in certain categories where our data has indicated a higher rate of customer dissatisfaction, such as gift certificates, video games, cell phones, computers and consumer electronics.

eBay sellers are free to offer any number of payment options in the situations described above, but this initiative requires that they also offer buyers the ability to pay with either PayPal or with a major credit card.

Marianna: It is obvious that PayPal is an ultimate leader in the number of users and online transactions, but which other payment system(s) would you consider the biggest competitor(s)? 

Cliff: PayPal has always faced competition and we have been successful by staying focused on payments and carefully building its expertise over the last nine years.  Certainly there are competitors that we pay close attention to, but we are more focused on the opportunities that lie ahead for our business.  We utilize a team of the most experienced payments professionals industry exclusively focused on payments to maintain our position as the leader in safe and easy online payments...

Stay tuned for the second part of this exclusive interview with Cliff Hopkins where some controversial questions on the topics of Paypal's non-cooperation with other internet currencies and promoted hatred against the company will be answered!