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In Praise of PayPal
It’s easy to forget that there was a time before theInternet. Some of us might remember whenonline stores didn’t commonly offer photos of the items for sale, and thosecyberstore owners who were more gifted with descriptive language or weredealing in easily-identifiable products had an advantage until photos (and,later, video) became a common part of an online catalog. Throughout those early days of onlinecommerce, the general public was wary of doing business online – and rightfullyso. It was nearly impossible for theaverage person to check out online sellers to know their identity andreputation, and the Better Business Bureau was among the first organizations topolice the Internet and set the rules for selling and a roster of guidelinesfor buyers in the new medium. Majorretailers and catalog houses already had a good reputation for mail orderbusiness, but new companies would struggle to bring in customers. Ultimately, we’re talking about the challengefor early online businesses to create trust in their nervous prospectivecustomers, and the Information Superhighway is littered with the bones of companiesthat became roadkill because they couldn’t develop trust quickly enough tosurvive in the evolving market.
Short of the technology itself, possibly the single mostimportant business to contribute to the success of online commerce isPayPal. Founded in December 1998, PayPalwas designed (at least in part) as a way for eBay bidders to pay sellers morerapidly and reliably. Before PayPal,eBay’s winning bidders typically wrote a check to the seller for winning bidsand mailed it; the seller would cash the check and send the item, but theprocess was unwieldy and time-consuming, especially considering that mostexchanges were taking place over state lines. Besides the amount of time lost mailing checks, there was the delay inwaiting for checks to clear – few sellers were confident enough to ship productuntil they were certain checks cleared and some complicated matters byaccepting only money orders – and significant exposure to both buyers andsellers. Unknown entities were tradingpaper all the time. How comfortable areyou sending a check to a stranger? Thiswas also a time when the technology of checks did not contain the securitymeasures we’ve come to expect, and the illicit practice of “check washing,” inwhich a criminal obtains a legitimate check and chemically scrubs the ink usedto author the check from the paper and re-addresses everything from the amount to“Pay to the Order of.”
PayPal was designed to provide double (or even triple-)blind security to either side of a transaction, linked through the parties’e-mail accounts. Each person links acredit, debit or bank account through the PayPal database and (helped byencoding software and tiers of passwords protecting each move) neither thebuyer or seller’s payment information is seen by the other party. The buyer’s computer contacts PayPal’sdatabase and transfers money from the buyer’s chosen account to PayPal, andPayPal routes it to the seller’s account. Most of the time, the entire exchange of funds happens overnight,drastically reducing the time required to complete the transaction. Reduced to a sentence, the process soundssimple, but it was – and continues to be – an astonishing part of what has madeonline commerce as popular as it is. Because a person’s PayPal account is set up as its own entity, it isunnecessary for the user to log into a new account, enter identifications andaccount numbers, then make payments each time. Because of PayPal’s security, maintaining an account allows the buyer toenter the PayPal information (usually just a user ID and password) and PayPaldoes the rest, including filling in shipping information and other necessarydata. So, besides financial security,PayPal has helped create a fast, convenient environment in which consumers canshop safely and easily. PayPal alsoallows safety nets for its customers, with a dispute resolution program builtinto each transaction as a forum for the discussion of problems.
From its humble beginnings facilitating transactions foronline auctions, PayPal has grown and diversified. PayPal is certainly no longer limited tosupporting eBay. For a nominal fee,account holders can send funds to anyone with an e-mail address. Neighborhood retailers like Dollar Generalallow customers to use PayPal at checkout, just like a debit or creditcard. Utilities, online retailers, cityoffices and private consumers accept PayPal as a viable method of payment, andPayPal can convert to dozens of currencies around the world. Last year, according to the website, PayPalhad 128 million active accounts, processed more than 7.6 million payments eachday, and expects to process over $20 billion dollars electronically this year.
Being good for the growth on online security and commercehas been good for PayPal, too.