In the last several years, PayPal’s emergence onto the mobile payments stage has perpetuated much anxiety among insured financial institutions as they anticipate with great apprehension the loss of their debt card fee income streams.  However, this whacked-out, oft-censored, and certain-Canadian-export-loving Senior Research Analyst is now here to allay “some” of the fears that may be wrought by the unit of eBay.

The prime contributor to the angst of many is PayPal’s current household reach.  Raddon’s National Consumer Research details that 48 percent of all households with online access have used a PayPal account to conduct person to person payments, or make online or in-store purchases in the last two years.  Beyond a shadow of doubt, this household penetration figure is astounding. By being one of the first to market, leveraging technology, and capitalizing the consumer’s thirst to transfer money online with ease, PayPal has become the indisputable, No. 1 “online” payments service provider.   Further, observing how PayPal customers have used and are using their accounts reveals how the company has established its dominance (See Following Chart).

Indicative of its market share in online payments arena, nine out of 10 PayPal customers or 43 percent of all online respondents have used their accounts to make online purchases on eBay, Amazon, etc.   Further, four out of 10 of PayPal customers have used their account to collect payments for goods and services from eBay sales, and/or to make person-to-person payments to friends or family members.  To a lesser extent, only one-fifth of PayPal customers have used their accounts to make in-store purchases and/or pay bills in the last two years.  It should be noted that PayPal has partnered with MasterCard since December 2000 to issue a co-branded debit card to its customers to facilitate in-store purchases.

Despite the company’s market reach, all may not be “hunky-dory” with PayPal when considering how often customers are accessing their accounts – the frequency of use.  Only a few PayPal customers have used or are using their accounts on a weekly basis.  In contrast, most PayPal customers only use their accounts a few times a year, while over seven out of 10 PayPal customers do not even use their accounts for in-store purchases or pay bills (See Following Chart).

This author can only speculate the reason for PayPal customers’ lack of account use.  Perhaps, it is the common problem encountered by PayPal users when the company suddenly and inexplicably freezes their accounts for up to six months.  When that happens, PayPal users cannot add to or withdraw from their accounts and are required to go through a complicated process to verify their identity.  Meanwhile, PayPal may be benefitting from the funds that are frozen.

Regardless of the reason(s) for the lack of PayPal account use, such usage or performance figures should be more unsettling to eBay than to the financial services industry.  There should be no doubt that such performance figures are the reason why eBay has been and is transforming PayPal to take a more an “offline” approach in order to gain more customer account use and a greater slice of the payments revenue pie.  Accordingly, the company has taken a number of steps, including partnering with Discover Financial Services and MoneyGram among others to get more consumers/customers to use its PayPal services in real-world situations.  The core of eBay’s strategy bets on consumer and customer willingness to pay for goods and services through PayPal using their mobile phone and a PIN.

That is a “risky” bet.  Raddon’s National Consumer Research details that only three percent of all PayPal customers currently use their mobile phone and PayPal to make some payments at stores and only 15 percent of PayPal customers are extremely to very likely to do so because they see value in being able to use their mobile phones to pay for goods and services at stores.  Conversely, almost two-thirds (63 percent) of PayPal customers are not very to not at all likely to use their mobile phones in such a manner because they do want to use their phone as a payment device.  Further, consumers and PayPal customers do not perceive that using their mobile phone and a PIN is any more convenient than swiping a debit or credit card at a payment terminal (See Following Chart).

Indicative of the transformation that eBay is attempting to pull off, the company recently launched its first ever national advertising campaign with actor Jeff Goldblum (The Fly) talking about PayPal being everywhere and not being just another mobile payment provider.  This whacked-out, oft-censored analyst can only hope that a shotgun-armed Geena Davis may be around to once again end The Fly’s suffering.

Lastly, an issue that eBay also may be soon facing is regulation.  Today, PayPal acts like a financial institution, but it is not regulated like one.  As an unregulated entity – payments provider, PayPal does not offer any of the consumer protections that real financial institutions offer.  Further, it is not required to maintain any of the security, customer service, or dispute resolution services that financial institutions provide.  Accordingly, this analyst waits with great anticipation for the newly-created Consumer Financial Protection Bureau to act and level the playing field.

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