SAN JOSE, Calif. (AP) - EBay Inc. is exploring whether
to require customers to use its online payment service PayPal, a move that has
angered users and prompted antitrust scrutiny in Australia, where a PayPal-only
rule takes effect next month.
It's unclear whether eBay will institute a similar policy in the United
States and other countries. However, the online auction company often tries big
changes in smaller markets before expanding them worldwide, and says it is open
to that in this case.
"We are going to take learnings from it and apply them accordingly," said
eBay spokesman Usher Lieberman.
EBay says it wants to reduce disputes and restore trust in its marketplace
with the PayPal-only plan. Because eBay and PayPal can share information on each
transaction, eBay says use of PayPal allows it to stop fraud more efficiently
than outside payment services. Pressing that safety argument in a heated
discussion with Australian users, an eBay executive compared the new rule to
banning the sale of heroin on street corners.
But critics lament that PayPal is costlier than other payment options, and
they suspect eBay is just interested in increasing PayPal's revenue. Australian
banks say the plan will eliminate competition for the sake of exaggerated
benefits.
"Competition will be restricted, innovation and development will be
constrained, new entry will be discouraged and PayPal will be able to increase
fees and charges to eBay users," the Australian Bankers Association said in a
filing with regulators Thursday.
Because eBay sellers are commonly independent merchants who don't accept
credit cards, PayPal acts as a go-between. Buyers use their credit cards and
bank account information to make payments, and PayPal relays the funds to
sellers' PayPal accounts, charging them 30 cents plus a commission -- up to 4.4
percent in Australia. The second-most common method of payment on eBay
Australia, bank transfers, cost 20 cents each.
Australia's bankers group says PayPal is not as immune to fraud as eBay
claims. While PayPal does keep bank and credit card account information secret
between trading partners, the bankers group decried that it does not verify
identity as banks do.
EBay's financial reports indicate that PayPal, while hardly fraud-proof, is
getting better at cracking down. Its loss rate is 0.24 percent, down from 0.33
percent a year ago. That means that for every $100 transacted with the service,
PayPal has to eat 24 cents because of fraud. That is slightly lower than the
rates seen in credit and debit card transactions involving the top 20 online
retailers, said Avivah Litan, a payments security analyst with Gartner Inc.
EBay contends that when users opt for methods like bank transfers, their
transactions are four times more likely to result in a disputed payment. EBay
says reducing that risk will attract new buyers to the site.
And, the company adds, it doesn't stand to profit directly from the PayPal
rule. It claims its investments in new buyer protections could outweigh any
gains from increased PayPal fees. For instance, under Australia's new plan, if a
buyer doesn't get what he or she paid for via PayPal, eBay will refund the buyer
up to 20,000 Australian dollars ($18,600).
To make the PayPal rule possible, eBay has applied for -- and automatically
gets -- immunity from Australia's anti-monopoly Trade Practices Act. But the
Australian Competition and Consumer Commission, which is investigating, could
revoke that immunity if it finds the plan will harm the marketplace. A decision
is expected soon.
Critics say eBay is just trying to fatten its bottom line. Growth in eBay's
core auction listings has slowed in recent quarters, pushing eBay to expand
other parts of its business, which includes PayPal, classifieds sites and online
telecommunications service Skype. And eBay has already taken other steps viewed
as protecting PayPal, such as banning Google Inc.'s rival Checkout service on
alleged safety concerns months after it was launched in 2006.
Sellers in Australia are "absolutely furious" and resent that they are
subjects of an experiment, said Phil Leahy, president of the 600-member
Australia chapter of the Professional eBay Sellers Alliance.
Leahy sells DVDs, movies and CDs through eBay, a high-volume, low-margin
business. He says using PayPal instead of bank transfers would cost him $4,700
per month, based on his January sales numbers of $332,000. "It's the difference
between making money and not making money," he said.
Leahy estimates Australian buyers use PayPal about 50 percent of the time --
eBay would not confirm the figure -- versus an 85 percent rate in the United
States. He said bank transfers are used in 30 percent of transactions. The rest
are conducted with bank and personal checks, money orders, or cash on delivery,
all of which are banned under eBay's new plan unless the payments are exchanged
in person. That happens rarely.
Shaun O'Brien, a seller of home theater accessories, said many Australians
trust their banking system more than online services like PayPal. He worries
buyers will leave when they are deprived of a choice.
"Australians here have been heavily educated against putting credit card
details online," O'Brien said. "There are plenty of customers out there that
refuse to use PayPal."
The Australian experiment could lead to a less-stringent step: Perhaps eBay
will require all sellers to at least offer PayPal as a payment choice. No matter
how it turns out, however, eBay surely has more big plans for PayPal, which has
grown steadily since the auction company bought the payment service in 2002.
Last year it accounted for $1.9 billion in revenue, 25 percent of eBay's total.
In fact, eBay's top e-commerce executive, Rajiv Dutta, PayPal's former
president, said last year he was convinced PayPal would someday be bigger than
eBay's better-known auction and marketplace business.
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