Pay pall

CASE STUDY OF

Agenda

Company Background Introduction History Related Technology Relation with company’s Working Operation & Importance Case study Advantages & Problem Summary References

Company Background

Service that allows members to send/receive money Website: https://www.paypal.com Corporate Headquarters

2211 North First StreetSan Jose, California 95131

 PayPal's president is David Marcus; Marcus joined PayPal in August 2011 after its acquisition of Zong of which he was the founder and CEO

 PayPal operates in 190 markets and manages more than 100 million active accounts in 25 currencies

PayPal’s 2010 annual revenue was $3.4 billion, up 23 percent year over year (PayPal, 2011)

Introduction

What is PAYPAL?

Peer-to-peer money transferLow cost – credibilityProvides limited fraud protection

Attractive:Acts as a master merchant for credit card processingNo cost to establish seller accountsEasy to integrate into a websiteCan be use to accept major credit cardsHas very competitive transaction rates

RegistrationFrom PayPal homepage:

Sign Up Now buttonChoose account type

(upgrade in the future possible)Credit card is required to use many features

Activation:PayPal:

debiting a small amount from the credit card

User:Credit card statement number sent back to PayPal

account activated

History & Today

Founded in December 1998 by Peter Thiel and Max Levchin in Silicon Valley, California.

Nowadays headquarters are located in San Jose.

Early PayPal product development focused on building functionality to enable people to "beam“ money to each other using handheld devices.

In October 2002 PayPal was acquired by eBay.

eBay phased out Billpoint and integrated PayPal intoits services

Contd..

Merchant Services Total Payment Volume as percentof Total Payment Volume was approximately 53percent in Q1 2009.

Bill Me Later Total Payment Volume as percent of Total Payment Volume was approximately 1 percentin Q1 2009.

PayPal transacted about $2,039 in Total PaymentVolume every second in Q1 2009.

PayPal accounts contain approximately $3 billion instored value that is spent every 2 weeks

Technology

The technologies used by PayPal consist of the main security mechanisms that most sites would employ.

PayPal uses HTTPS and SSL to encrypt the data stream when a user establishes a session with the PayPal site.

It is unknown what security mechanisms are used to protect their databases containing information about their customers.

Payment process between individuals

Payment Data Transfer

Instant Payment Notification

PayPal headquarter San Jose, California

PayPal overview

• 50M user accounts

• 5 currencies, 45 countries

• Alternative funding options for buyers who don’t own credit cards or prefer not to use them:– Bank account

transfer– eCheck– Stored balance– Buyer Credit

1 2 3 5 7 8 1012

1417

1923

2732

3540

4650

PayPal Member Account Growth through Q2 ‘04

A growing community of users

How PayPal works

SendersSenders

Visa/MC, Amex,

DiscoverBank

Account

Debit Card (e.g.,

Switch-Solo in

UK)

Stored Value Account

Bank AccountPayPal Debit MasterCard

Paper Check

Another PayPal accountStored

Value Account

ReceiversReceivers

eCheck

Why PayPal works for buyers

• Free to use• Pay anyone with a credit card or bank account:

“online wallet”• Fast, secure payment – 1 week → 1 minute• Stores financial information securely to

maintains user privacy• Works cross-border

Why PayPal works for sellers

• Enables credit card acceptance• Faster payment = faster inventory turn• Easy to sign up• No setup, monthly or gateway fees• Competitive price with no minimum time

commitment• Fraud protection – 25 bp vs. 110 bp

Case Study: eBay is a premier growth company

1

10

100

1,000

10,000

100,000

1,000,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43

(Real $M)

STARBUCKS

GMV

1 5 10 15 20 25 30 35 40

Years from incorporation

Note: Sales and GMV adjusted to reflect 2003 dollars. http://www.bea.gov/dn/home/gdp.htmSource: eBay; US Department of commerce; Bureau of Economic Analysis; BCG analysis.

Symbiotic relationship with eBay

• Increases velocity of trade

• Enhances trust & safety

• Enables innovation

• Provides the aggregation point for small business

• Drives critical mass of buyers & sellers

• Solved counter-party problem

Impact to eBay marketplace

56%

49%45%

41%38% 39%

32%

58%53%

48%44%44%

68%68%

0%

10%

20%

30%

40%

50%

60%

70%

80% PayPal integration

Year-over-year US transaction revenue growth

Note: 2001 data reflects growth rates in total US revenues, not just “transaction revenues.” Transaction revenues have constituted over 95% of total US revenues from 2002 through Q2, 2004.

PayPal enables global trade

Can be used in 45 countries

PayPal availablePayPal available + Local Bank

Acct. Withdrawal

Currencies Supported: US $, CA $, GBP £, Euro €, JP Yen ¥

Localized: US, UK, DE, FR, BE, CH, NL, AT

A Global DestinyPayPal TPV

$0.63 $0.74$0.88

$1.10$1.30

$1.41 $1.59

$2.12

$2.63

$2.86$3.07

$4.42

$3.76

$4.46

Q1 01Q2 01

Q3 01Q4 01

Q1 02Q2 02

Q3 02Q4 02

Q1 03Q2 03

Q3 03Q4 03

Q1 04Q2 04

US

$ B

illi

on

s

• Milestones• Multi-currency support in

November 2002• UK site: September 2003• DE site: July 2004• FR site: August 2003

• PayPal will continue to support eBay in key geographies where eBay is strong and payments solutions are required

% of PayPal revenues from Int'l

19.6%21.0% 21.4%

23.2%

26.2%28.7%

Q1 03Q2 03

Q3 03Q4 03

Q1 04Q2 04

Preferred payment methods

0

10

20

30

40

50

60

70

80

90

100

% o

f V

olu

me

US Canada France UK Italy Germany

Cashless Payment Usage

Checks Cards Bank Transfer

Source: BIS Red Book

Partnering for success in remittances

PayPal offers• User network of 50 million,

with stored financial information

• Millions of immigrants• Convenient, “always on”

front end in key sender countries: US, UK, DE

• Pricing is 50% less than MTO• Real time funds availability

(instant ACH or credit cards)• Innovative products• Trusted payments brand in

US• Secure platform• Money transmitter license• Compliant with USA Patriot

Act• International account-to-

account transfers

PayPal needs• Banked senders and receivers,

who are online; OR• Partner to deliver funds from a

user’s PayPal account; OR• Physical access points for offline

or unbanked receivers

• Access to customers in receiver countries

• Sponsorship into the ATM network

• Compliance – OFAC, AML, etc• Trusted payments brand in

receiver countries

Can banks profit from “remittances”?

Yes, but…• Market competition is fierce

– MTOs have 90% of the “official” market (Western Union, Money Gram)

– MTOs have robust physical distribution, low access barriers, real time funds transfer

– Internet P2P players (e.g., Yahoo Pay Direct)

• Need to overcome the “the first mile problem”– Establish profitability to serve customers– Customer-friendly interface– Customer acquisition– No real time funds transfer between institutions– Legal/Regulatory barriers – USA Patriot Act, card associations,

NACHA

• Need to overcome the “the last mile problem”– Receivers are largely “unbanked,” exhibit low financial literacy– Local bank networks (branches and ATMs) still in development– FATF

PayPal Security

A fraudster attack to our business:The email address of our PayPal accountThe URL a buyer is returned to after making a purchaseAny custom fields we have defined

Spoof Email - red flags:o Generic greetingo False sense of urgencyo Fake linkso Request for personal informationo Insecure URLo Pop-up boxeso Attachments

Contd..

Payment button – security: Encrypted Website Payments (EWP)

Security of Transactions

oPhishing Emails and Spoof Sites

oSecurity Vulnerability of Mobile App

oBackend System Security Holes

PayPal advantages and problems

Advantages:o Increased SalesoCredibilityoSecurityoThe Checkout Experience

Problems:o Biggest criticism: PayPal acts like a bank, but it

isn't regulated like oneo Sudden and inexplicable freezing of accounts

long, complicated process to verify identity o A long and confusing Terms of Service Agreement o Rude customer service representatives

Summary of PayPal

PayPal continues to be the most popular money transfer service for online transactions

Currently the most popular online payment system.

PayPal has Addressed Issues Effectively

Company is Leader in Industry

Customers Trust the Service

Company Committed to Quality/Integrity

Contd..

Company Timeline 1998 Founded by Peter Thiel and Max Levchin 2002 Acquired by eBay 2005 PayPal Acquires VeriSign's Payment

Gateway 2006 PayPal Expands Internationally

Language/Currency Compatibility Issue 2009 Offer Bill Me Later Option 2010 Now on Facebook, iPhone, and Android

Thank you