As we proceed at a gallop towards the end of the year with the accompanying delights of inventory and annual account finalization looming, this is the moment to look back. Today let’s review the Red Ink Diary posts this year on PayPal, and we will save eBay for later.
I have written extensively all year on the subject of PayPal’s squeeze tactics:
- PayPal’s New Trick August 27th, 2009
- Fighting PayPal’s Rolling Reserves July 2nd, 2009
- PayPal’s Rolling Reserves Start To Bite In USA June 26th, 2009
- PayPal Rolling Reserves - Straight Talk June 12th, 2009
- Russian Roulette with PayPal June 9th, 2009
- The Superglue Factor eBay and PayPal February 19th, 2009
Sue Bailey at TameBay wrote “Paypal reserves heres whats really happening” on February 16th 2009 about increasing implementation of PayPal’s reserve policy in the UK. Read the comments on that article from UK sellers showing increasing implementation of reserves up to a month later when comments closed. What happens overseas is generally a good precursor of what is planned in the USA.
CEO John Donohoe increasingly looks to PayPal as the prime eBay Inc revenue generator as he struggles to regain the annual growth momentum of the boom years. Although unfavorable comparison to the growth related performance of previous CEO Meg Whitman is inevitable, some of the current stagnation is directly attributable to shortsighted policy planning of earlier management. This has not changed with the new management. As eBay (the venue) has shown, a corporation can only grow so far with quarterly “lever pulling” before losing the ka-ching.
How long before the cash cow becomes the crash cow?
The Status Quo
PayPal has done a superb job convincing consumers that it is “the faster safer way to pay and get paid online.”
Merchant Services (off eBay) have been marketed heavily off eBay this year resulting in acquisition of several big name customers, e.g. SouthWest Airlines, Omaha Steaks, Smart Bargains.
So far as I can tell no market analyst has asked what fee discounts or concessions were made to gain the big name accounts.
Actual growth figures according to the Q3-09 report:
- PayPal (the whole not just Merchant Services) shows total revenue up 15%,
- 31% growth year over year
- Total Payment Volume TPV (number of payments) up 19%
- TPV growth was 14% in the U.S.
- TPV growth 30% internationally.
- Merchant Services account for 56% of total TPV
- TPV Merchant Services grew 47% .
The legal camouflage of permitting sellers to use carefully chosen uncompetitive alternative payment systems on eBay while simultaneously heavily promoting PayPal to buyers on listing pages has just about maximized any possible gain from that venue.
The main growth opportunities are overseas and general e-commerce within the USA. If and when Google Checkout expands to include Canada and Australia then PayPal will have to work a lot harder for growth.
The Crystal Ball
PayPal is perceived by buyers as being very safe, up to and until they have an off eBay claim. Then they find out that they have far less protection than they thought they had, or would have had if they had paid by credit card.
The ease of setting up PayPal on a website (for sellers) combined with the name recognition and trust factor for buyers ensures that the vast majority of websites operated by small sellers will offer PayPal as their sole payment processor.
If PayPal imposes rolling reserves on small independent websites I predict a rapid and extensive switch to Google Checkout (in the USA) or other payment methods elsewhere.
Sooner or later, when enough complaints are received by the FTC and individual State’s Attorneys General someone will note that PayPal is only licensed as a money transmitter and is required by law to transmit monies within a legally defined period of time, usually 10 days. Not one State’s statute that I have read mentions the permissibility of holding reserves or freezing accounts for 180 days.
Auntie May says “The higher the climb the harder the fall” Hmm, makes sense to me.
I ran a trial the first three months of this year in which I removed the PayPal button on my Bonanzle booth, while stating that I would accept PayPal if asked. My sales conversion ratio dropped by about 40%. I put the PayPal button back.
I am seeing increasing acceptance of Google Checkout from buyers. Checkout is truly safer for buyers because they have all the protection of using a credit card without exposing the information to sellers. My figures for 2009 show 60% PayPal to 40% Google Checkout with my website being 100% PayPal (something I hope to change very soon.)
Y’all come back!