PayPal: 10 years of successful operation highlight the potential threat to card issuers

Jul 04, 2008 (Datamonitor via COMTEX) -- PYPL | Quote | Chart | News | PowerRating -- This year PayPal is celebrating 10 years in the payment industry. Founded in December 1998 and acquired by eBay in 2002, PayPal now has more than 60 million active accounts and transacted $47 billion in 2007, accounting for 9% of global online commerce. The emergence of this kind of payment service is becoming a significant threat to card issuers in the online space.

PayPal has developed rapidly since it was acquired by eBay, significantly expanding the geographical reach of its service. Indeed, PayPal now has over 60 million active accounts in 190 countries worldwide. Although credit cards are by far the preferred method of payments online, payments through PayPal now constitute 9% of global online sales. According to PayPal, the company processes some $2,000 in payments every second.

The emergence of PayPal in the P2P (person-to-person) payments space has been a hugely interesting development in the industry. It initially filled a market gap created by the lack of an effective online P2P payment solution. For this reason, PayPal is rightly viewed as being complementary to the existing payment card infrastructure, rather than being a competitor since the majority of PayPal accounts are initially funded by a payment card.

However, the scale of PayPal is such that it is now becoming established in the business-to-consumer payment space, facilitating payments between consumers and merchants. In this context, then, PayPal is very much a direct competitor to the existing payment card infrastructure. The company has also begun to explore its options in card issuing, offering co-brand credit cards in the UK and US, as well as issuing MasterCard branded debit cards in the US.

This is clearly an important development in PayPal's history and further highlights its intentions to compete with established card issuers for market share. Clearly, therefore, card issuers must respond in order to maintain their dominance of the market. They must seek to improve the effectiveness of online card payments, or perhaps even move towards facilitating an alternative method of payment.

http://www.datamonitor.com

Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon

Morning Coffee with TradingMarkets -- Free Newsletter

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index