Always being one to stretch and look beyond my initial assignment, I took our editor's "Mover and Shaker" challenge a different direction and decided to gaze into the crystal ball and seek the Mover & Shaker To Be—the company or individual that will have the greatest effect on the payments business in the foreseeable future. Of course, I came up with the usual candidates: the economy, government regulation, compliance and competition. However, as I play with my tarot cards and contemplate the future, I see no organization in a better position to alter the future of the payments business than PayPal. This 9 year-old organization, created through a 2000 merger between Confinity and X.com, now operates in 190 markets, manages over 184 million consumer and merchant accounts and allows businesses and customers to send, receive and hold funds in 19 different currencies. Arguably, no other payments company has done more to facilitate and open up e-commerce globally than PayPal. PayPal is the preferred payment brand for Generation Y consumers and merchants and fits in the same space as progressive, leading-edge companies like Google, MySpace, Facebook and Twitter. Given what PayPal has done for e-commerce in less than 10 years, just imagine what the future has in store.
PayPal has built a successful franchise leveraging the existing infrastructure of the payments world. They have followed the IPSP rules of the major networks, worked with major acquirers and have stuck to an e-commerce business model, enabling payments on eBay and throughout the virtual world. They have done this extremely well and in 2008 processed $60 billion, which equates to 15% of all U.S. e-commerce traffic, 9% globally. This once small IPSP has also invested significantly to alter its position in the payments world. In 2005, PayPal purchased VeriSign's gateway business for greater connectivity and increased options for larger merchants. In 2008, PayPal purchased Bill Me Later, adding additional payment flexibility and an immediate credit facility for their on-line consumers. PayPal has enabled SMS and mobile payments applications, with RIM announcing that PayPal will be the only payment mechanism for its Blackberry App World, which launched on April 1, 2009. PayPal is now registered as a bank in Luxembourg and conducts business throughout the EU and the Far East. In fact, last year PayPal's non-eBay processing volume exceeded its eBay volume for the first time, prompting eBay CEO John Donahoe to state that PayPal could soon be a larger driver of revenue than the eBay marketplaces. PayPal has become a household brand name, and if you dissect the business, they have evolved into a payments enabler, facilitator, network, issuer, acquirer and technology provider. Most industry experts and analysts believe that PayPal is held back by its eBay ownership, and at some point in the near future will be spun-off into a separate public company with its own board of directors and corporate vision. Will that vision be a great facilitator of payments, working with the existing channels and distribution networks? Or to become the largest network, issuer and acquirer in the world, forcing the rest of the payments industry to play by a new set of rules?
I am not privy to the board room or strategic planning meetings in San Jose, but nothing gives me greater anxiety or concern than potential disintermediation. The term is scary as it means your services are no longer relevant or as valued in the market. I do not know if PayPal will disintermediate or complement the traditional players but currently we derive the majority of our revenues from
the spread associated with Visa, MasterCard and Discover transactions. Over the years I have written about the need to morph our organizations into merchant payment facilitators, enabling businesses to conduct all forms of electronic commerce more efficiently. But what if our primary revenue streams shrink when a new entity issues credit or runs transactions on its own proprietary network—wait; doesn't PayPal do that today?
To be successful in this type of endeavor, an entity would need to have a tremendous brand, reach and access to capital — again, PayPal seems to have all those things. Worse yet, what if someone else plays the role of merchant payment facilitator?
PayPal claims merchants like to use their Business Account Service because it is easy, secure and cost-effective. Sounds like an acquiring pitch to me. Time will only tell what role PayPal will play in the payments space: network, acquirer, processor, issuer, value-add technology provider. However, one thing is clear; this organization is the Mover and Shaker of the Future, one on which all stakeholders need to keep a close eye.  |
