Lucian Novosel 07.29.

2012 CIS 143

Business Report :: PayPal

. TABLE OF CONTENTS SUMMARY : ANALYSIS: Business Model : SWOT: Internal Strengths and Weaknesses : Strengths: Weaknesses : External Opportunities and Threats: Opportunities: Threats: QUESTIONS TO CONSIDER: RECOMMENDATIONS : Summary of Recommendations: Recommendations: Reinforcing an international presence using consumer electronics: Build informative, accessible and connected user accounts: .

SUMMARY:
PayPal has had a strong foothold in ecommerce beginning as one of the earliest online transaction services. As the landscape of ecommerce has changed to include mobile commerce, connect international merchants and empower peer to peer exchanges PayPal has kept up by offering enabling transaction services. Despite competitors such as Google Wallet, Square, and Amazon marketplace, PayPal is the only transaction service to offer all the services that characterize those distinctive transaction services. PayPal should compete with these services by offering their services at competitive rates whereby increasing the volume of transactions as much as possible. PayPal offers all the payment options currently available to the market, now they must provide encouragement for consumers to use PayPal for all their transaction needs.

ANALYSIS:
Business Model:
PayPal has evolved and adjusted its business model to accommodate for new market forces and modern banking services. PayPal began as a subsidiary to the previously favored online marketplace eBay. As a powerful online acquirer limited to a constrained segment of the online market the next phase in its growth was to extend into new online marketplaces and provide innovative merchant services. Alongside ebay, PayPal extended its

Lucian Novosel 07.29.2012 CIS 143 1 services into foreign markets beginning in the UK in 2004 , currently the PayPal has precedence in 21 countries and provides transfers in 25 currencies. PayPal offers a variety of online and mobile transaction services for B2B or P2P transactions. For every transaction PayPal charges a transaction fee along with a surcharge on the amount exchanged ranging from 1.9 to 2.9 percent of the transaction. PayPal provides a Merchant Gateway service for online vendors, worldwide sales services, retail credit card processing through PayPal Here, business and consumer credit card accounts, in store pointof-sale terminal services and credit based Bill Me Later services. PayPal currently receives $3.4 billion in revenue and $730 million in net income from their services2. Customer accounts grew by 13% in the last quarter, totaling 113 million accounts internationally. By comparison, Wells Fargo is the one of the strongest international Banks with 70 million customers. For PayPal 42% of revenue came from international accounts. Since launching an array of unprecedented ecommerce services, PayPal has manifested a number of innovative in store payment services that are adequate replacements for current technologies. They continue to develop new features for a growing mobile user basis and are leveraging their secure infrastructure and international prestige to gain a variety users who stand to benefit from their services. Their main revenue source comes from transaction fees while they also charge merchants a minimal subscription fee for their automated transaction services. PayPals strategic goals are to provide the majority of transaction services possible for retail and online operations, and expand their account holder population. As wireless internet and mobile infrastructure is established in developing countries PayPal is prepared to provide transaction services to local economies worldwide. Although peer to peer, consumer to consumer, and business to consumer transactions yield insignificant revenuePayPal profits from an international volume of transaction fees and merchant subscriptions. This volume will only grow as online merchants will only grow as 3rd world users utilize PayPals mobile transaction services3.

SWOT:
Internal Strengths and Weaknesses:
Strengths: Throughout the decade PayPal has developed a portfolio of patents and licensing rights after a number of intellectual property litigations have forced them into settlements. As one of the primary innovators of ecommerce transaction services PayPay is well suited to making intellectual property claims on future technologies. current market segment:
1

"History of PayPal." History of PayPal. PayPal, n.d. Web. 26 July 2012. <http://www.paypal-apac.com/sg/about-paypal/historyof-paypal.aspx>. 2 Huen, David. "Continued Growth Propels PayPal's Q2 Earnings." PaymentSource(n.d.): n. pag. Galenet.gelegroup. 18 July 2012. Web. 26 July 2012. <http://galenet.galegroup.com/servlet/BCRC? vrsn=unknown&locID=berkeley_main&srchtp=glbc&cc=2&c=1&mode=c&ste=72&tpc=Financial+Data&tbst=tsCM&tab=2&ccm p=PayPal+Inc.&mst=paypal&n=25&docNum=A296949191&bConts=13095>. 3 Rao, Leena. "EBay: PayPal Mobile Payment Volume Up Over 500 Percent On Thanksgiving Day And Black Friday." TechCrunch. TechCrunch, 25 Nov. 2011. Web. 26 July 2012. <http://techcrunch.com/2011/11/25/ebay-paypal-mobile-paymentvolume-up-over-500-percent-on-thanksgiving-day/>.

Lucian Novosel 07.29.2012 CIS 143 eBay has International reach and has established mobile transaction tools for even the most rudimentary of mobile phones, so that user can even exchange funds using SMS. Although some of their services(NFC payments) do not work across all devices, they adapt essential transaction services for the most rudimentary of mobile devices. PayPal currently offers an array of user and merchant services: Retail store NFC/mobile payment terminals. PayPal Here, a smartphone card reader for store transactions Online Merchant tools User to User tools. Bill me later PayPal cards PayPal has one of the most renowned security systems for all device platforms they provide support for. Currently many competitors struggle to provide a secure ecommerce infrastructure.4 PayPals Digital Wallet enables innovative commerce services such

as loyalty cards. These cards allows users to pay from multiple accounts, use gift credit and access special offers. PayPal credit cards and mobile NFCs are already available to PayPal users. 5 6
PayPal has several strategic partnerships with the three largest in store POS card terminal providers in the United States, which will allow for PayPal to incorporate new payment options into big-box stores. PayPal has removed transaction services, seized funds, frozen charity accounts, and provided poor customer service. They have mistakenly removed accounts away from charitable organizations and harmless users. Much publicity has been raised around these sub par actions. PayPal has several complaint sites that have been generated by angered users, one of them is entitled paypalsucks.com.7Some of PayPals promotional videos that are posted on YouTube have malicious comments that speak about the hope of a better service. One specific video has been upvoted by many users.8 PayPal has frozen, and shut down accounts for controversial account holders such as wikileaks, Cryptome and online gambling sites. On an international basis PayPal has taken away certain

Weaknesses:

Christophe, Christophe. "Time for Banks to Show How They Protect Mobile Payment Users." Gartner.com. Gartner Analysts, 21 Dec. 2011. Web. 25 July 2012. <http://my.gartner.com/portal /server.pt?open=512>. 5 Shauger, Samuel. PayPal Digital Wallet Demo. N.d. EBayInk, 13 Mar. 2012. Web. 25 July 2012.<http://www.youtube.com/watch?v=4ZCAxB3Z2mk> 6 Kessler, Sarah. "PayPal Takes Payments Offline With PayPal Wallet." Mashable. Mashable, 11 Nov. 2011. Web. 26 July 2012. <http://mashable.com/2011/11/02/paypal-wallet/>. 7 http://www.aboutpaypal.org/ 8 http://www.youtube.com/watch?v=V7q1jx8mYi8

Lucian Novosel 07.29.2012 CIS 143 account services without forewarning, often causing entire systems of exchanges to be lost. The worst instance of this happened in India in 20109. Beyond controversial accounts, many illegal(and sometimes international) transactions are enabled by PayPal. PayPal has had a history of lawsuits over patent ownership whether they were suing over license infringements or were being sued themselves. With the complexity of the legal landscape of patents, PayPal could mistakenly infringe on reserved patent rights, and trigger expensive litigations. By being a subsidiary of eBay PayPal has limited flexibility in how it can change its business plan. The online market giant eBay funnels the vast majority of users to PayPal when paying for items. Although eBay assists in generating new account holders for PayPal, eBays revenue model is shifting to become more reliant on PayPal transactions. This partnership could drag PayPal down as it enters new markets and provides services that are highly irrelevant to eBay.

External Opportunities and Threats:

Opportunities: PayPal could embrace the concepts that Simple, Bitcoins, and Google wallet have employed by becoming a international banking power. PayPal has the opportunity to invest user funds and gain revenue from interest. PayPal has the ability to capture new audiences using its strong position in the market and innovations that have already been established by Square and Google Wallet. Threats: PayPal is currently competing with an new generation of innovative startups that manage money in new and incredibly effective ways. Many banks and startups are starting to offer distinct PayPal service, and specialize in them. Before PayPal released Here there was already Square. PayPal will have to offer retail transaction costs at a lower rate if they want to establish a foothold in transaction services that have already been delivered by other companies. To list a few other companies that have already gotten their foot in the door: Google Wallet provides NFC payment options for in store purchases through Google mobile devices(Android line). They also offer prepaid account options for their cards. Google now has Google Checkout an online service for purchasing items and managing transactions. As an aggregator of online services, this feature provides a very
9

Manish, Annkur. "Paypal India Outage No Payments to or from India [Updated]."Pluggd.in. Plugged In, 05 Feb. 2012. Web. 25 July 2012. <http://www.pluggd.in/paypal-india-outage-no-payments-to-or-from-india-297/>.

Lucian Novosel 07.29.2012 CIS 143 convenient way for Google users to manage merchant operations including sales. Square has provided store and freelance merchants with a way to accept credit card payments directly to their accounts using an adaptor for their cell phones. Square has significantly higher rating on the Android app market and significantly more users in general. Square launched 2 year before PayPal Here. Square has also released NFC payment options with limited success. Upon the release of PayPal Here PayPal was forced to reduce its transaction fee below the price of Square to have some type of competitive advantage in marketing their device. Amazon is a significant competitor to PayPal and eBay as a unified B2C and C2C supplier. Amazon has just begun to offer innovative transaction services for online retailers and benevolent organizations. P2P services might not be able to derive a profit or significant revenue. Rising competition has forced PayPal to reduce their transaction fees as much as possible. A limited amount of their consumer basis stores their money in PayPal so it is hard for them to derive revenue by investing user funds in interest driven securities. PayPal currently solely derives profit from transaction costs, and also has subscription plans for certain sites.10

QUESTIONS TO CONSIDER:
What does PayPal do? What are the core components of the PayPal business? How does PayPal make money? What are the ethical issues raise in how PayPal collects and disburses funds? What are the complaints brought by some PayPal users about the service? Is the claim that the company is acting in an unethical manner fair? In what ways could PayPal improve the management of its service?

RECOMMENDATIONS:
Summary of Recommendations:
PayPal should continue to offer mobile transaction services and break ground with large populations from the developing world as they come online. It is essential that PayPal provides the support for large volumes of international consumers, by providing an inexpensive and thereby accessible way for people to engage in globalised trade. PayPal has provided methods whereby account holders can transact through any business outlet(online or in-store) using PayPal, in order to make consumers want to use these services PayPal should offer financial
10

Gil, Paul. "PayPal 101: How Paypal Works, 2012." About.com Internet for Beginners. About.com, 01 July 2012. Web. 25 July 2012. <http://netforbeginners.about.com/od/ebay101/ss/paypal101_2.htm>

Lucian Novosel 07.29.2012 CIS 143 analysis services that provide a convenient way for consumers to understand their comprehensive spending.

Recommendations:
Reinforcing an international presence using consumer electronics:
Currently PayPal has a international device monopoly over electronic transactions. Users from all over the world can make distant transactions using any internet connected device. As third world countries are starting to purchase mobile devices there is an increasing adoption of electronic banking systems to maintain financial data. This growing base of technically enabled users creates the need and opportunity for a secure and globalised transaction system with international recognition. These users demand the ability to trade internationally for large or small quantities. Although PayPal has an international presence, there are numerous competitors that are offering similar if not better services. PayPal should take the opportunity to provide meditative exchange technologies for an increasing population of users by charging competitive transaction fees while also providing an informative interface for users. Due to the number of technologically active people in global and local economies, PayPal must have a universally competitive transaction price to establish dominance. In this early stage of global electronic finance development it is necessary to gain the largest quantity of account holders and lasso the largest volume of transactions, not necessarily profiting from each one. PayPal is no longer the sole provider of international transaction services, in order to provide an innovative and groundbreaking customer experience PayPal must enable inexpensive transaction services that empower new technology owners to easily utilize transaction services.

Build informative, accessible and connected user accounts:

Users are turning to third parties to use online financial analysis services that banks have neglected for years. Users now share their financial data with Mint.com to get visual representations of their financial history, and to analyse their spending in realtime. There is a large demand for informative and analytical financial tools where some companies like Mint.com have already provided the service for free. Many users want to avoid entering their banking information into computers, with so many browser cookies and malware programs running at all times it is undoubtedly unsecure to type out financial information repeatedly. Beyond that online consumers want a convenient way to pay for things, research has found that users are likely to impulsively donate or purchase online but are easily dissuaded by the checkout process. Although PayPal offers common banking services such as a credit payments and account cards, many people see a disconnect between their banks and PayPal. Users currently see PayPal as an online payment system, not a site to organize their funds or make retail payments. Considering the demand for services that allow the user to analyse their financial data, the need for convenient online commerce services and the void of analytical spending services, PayPal could encourage customers to use PayPal for all financial transactions by offering a seamless spending account and visual spending analytics. More users would be drawn to PayPals numerous transaction services if PayPal provided a way for consumers to view their comprehensive spending history in a visually informative way. Imagine that you could describe a retail store purchase on your mobile device before using NFC to pay for the item, your spending data from all transactions(retail or online) would be seamlessly documented in a central place.

Lucian Novosel 07.29.2012 CIS 143 Providing these services would create a unique customer experience. Consumers would be more encouraged to make their transactions through their PayPal account, and would ultimately feel financially aware using PayPal services. These improvements would greatly extend the consumer lifecycle, and lessen the risk that consumers turn elsewhere for payment services that offer analytical services.