PAYPAL’S PROMISE: DIGITAL DOLLARS

Can a company have 15 million customers and still be virtually unknown? Apparently so, if the company is PayPal. Even a boffo IPO last February — priced at $12, the stock closed at $20.09 the first day — didn’t put the online payment company on everyone’s lips. But wider recognition should come, because two-year-old PayPal offers a smart solution to a pressing problem.

Here’s how it works: A Web user opens an account with PayPal (www.paypal.com), electing to make payments by credit card or bank account. With PayPal as a secure intermediary, online shoppers don’t have to give their credit card numbers to strangers or wait while personal checks clear the bank. And small merchants avoid paying hefty fees to credit card companies (PayPal takes a small percentage of each transaction).

Though it owns about 90 percent of the growing e-payment market, PayPal faces its share of obstacles. Despite $104.8 million in revenue last year, the company has yet to reach profitability. More than 60 percent of PayPal’s 2001 transactions came via eBay and other auction sites. Not surprisingly, eBay pushes its own payment service, Billpoint. And regulators in New York and California want assurance that PayPal isn’t engaged in unauthorized banking.
If it can clear these legal hurdles and fend off competitors, PayPal could be a friend to “micropayers” for years to come — while proving that not all Internet startups are doomed to flame out.