Founded in 1998, PayPal offers a straightforward service for making and receiving payments over the internet.
Its popularity among traders on internet auctions – both individuals and small businesses – persuaded market leader eBay to pay $1.5 billion to buy the Mountain View, California-based company in July 2002. At the time, PayPal reaped 60% of its business from eBay users alone.
The system works by establishing PayPal as a trusted intermediary with which both payer and payee have an account. This ensures that sensitive information, such as credit card or bank account numbers, are not disclosed to anyone other than PayPal.
Anyone can sign up with PayPal to send payments to anyone with an email address. The next level of membership lets individuals send payments and receive any type of payment, including credit card payments. Businesses can also sign up with PayPal to send and receive payments in their business name. PayPal makes most of its revenue by charging a commission on payments.
Businesses can also register for PayPal's seller protection scheme which can insure an internet businesses against chargebacks incurred for fraudulent transactions.
Until last year, only US based companies and individuals could register with PayPal as payees under the system, while businesses and individuals from the US and 38 countries worldwide – including the UK – could register as payers. It now claims more than 35 million users worldwide.
A stumbling block for its European expansion, according to the company, was that Europe has no equivalent of the authentication verification service (AVS) used in the US to check a user's credit card information against an address.
In October last year, PayPal launched a UK web site which offered seller protection services in the UK only. When the new subsidiary launches, both seller and buyer protections will be available, as they are to US buyers and sellers.
EBay began advising its customers via e-mail last week that PayPal Europe Ltd. should begin operating in February 2004, subject to authorisation from the UK's Financial Services Authority.
The launch will be good news for eBay on two fronts: it will benefit from PayPal transactions in Europe, but is also likely to see an increase in European use of its auction site.
PayPal already has European headquarters in Dublin dealing with customer service and fraud prevention, according to Internetnews.com.