- The Washington Times - Monday, January 21, 2002

The Internet has a way of giving birth to business nobody would have thought of before, often started by people outside the usual world of business. PayPal, a clever marriage of e-mail and the credit-card system, looks to be one of them. It lets "anybody" accept credit cards over the Internet. Your large or small electronic business, for example. Further, it lets you send money electronically to anyone with an e-mail address.
It works. (I have an account.) It's probably going to be a big deal. The company says it already has 12 million subscribers, including 2.2 million small businesses, which makes it a medium-sized deal now.
How it works: You, an individual, go to www.paypal.com and sign up for an account. This takes maybe five minutes and involves filling in some blanks and typing your credit-card number. The data are sent over an encrypted link so security isn't a problem.
Now suppose you want to send me $100. You go to PayPal.com, fill in my e-mail address and the amount, and click "send." Shortly, I get an e-mail from PayPal saying essentially, "You've Got Money." I go to PayPal.com and, if I already have my own PayPal account, I click to accept the hundred bucks, which magically appears in my account.
If I don't have an account, I have to sign up to receive the money. This costs me nothing, and of course creates another PayPal customer. (The company spreads by e-mail. The phrase "viral marketing" is sometimes applied to this.) The service is free for individuals now, at any rate. If you get a business or Premiere account, the company takes 30 cents per transaction plus 2.9 percent of payments made to you. (There are several forms of accounts, and detail I'm glossing over for brevity. Check the site.)
It makes electronic commerce work for individuals and others who can't qualify to accept credit cards or don't want to bother with the fees and nuisance of dealing with a bank. PayPal says it is now the first from of payment on EBay.
If you have a Web site and want to accept payment for whatever you sell, or just want to accept donations, you put a PayPal button on your pages. To do this, you go to the PayPal site, copy some html code and paste it into the source code of your site. This requires being slightly techy or knowing someone who is, but takes no more than 10 minutes. Thereafter, when a customer clicks on the button, up comes the payment form.
To get your money out of your account, you can have PayPal send you a check, arrange direct deposit to your bank or have the company issue you a debit card, whereupon you can use it like any other debit card. You can keep your dough in a money-market account with PayPal, which looks almost like a home-brew bank.
Why is all of this important?
Says me, the company is making a grab at becoming the de facto method of choice for money transfers between individuals, and between customers and Net businesses. This is a potentially huge market. How huge is hard to say. Porn sites, people selling handicrafts from their basements, and parents paying their daughter's Girl Scout dues are not well-quantified markets, but they are perfect for this form of payment.
To succeed against competition that is beginning to appear, the company needs to sign up so many people that the others can't catch up. That is, it needs to become a de facto standard, like Microsoft Windows. It's trying. And it may be succeeding. I spend a fair amount of time on the Web, and I see PayPal buttons popping up all over.
Interestingly, there may be ramifications that banks and big companies haven't figured out yet. For example, if your sister across the continent or in Europe needed $400 in a hurry, you could use Western Union and pay high fees for the transfer. Or you could PayPal it to her for little or nothing, putting it on your credit card. She could then use her PayPal debit card to get the money. I wonder what Western Union thinks about that.
To me, what fascinates is how the Internet lets odd new businesses flourish with little capital (as compared, say, to starting an aircraft factory) and spread instantly across the Earth. Once it took forever to become an internationally important corporation. Now it seems to take a bright idea and a Web server.


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