October 12, 2005

eBay migrates to the Payments business

Jim points out that eBay is to purchase the VeriSign payments gateway business:

eBay’s PayPal said the acquisition would enable it to include new small- and medium-size business customers in its user base, as well as expand its repertoire of payment processing options. Recently, many startups have entered the online payments business, especially those targeting the market that has sprung up around the purchase and sale of digital content.

And more at PaymentNews. This adds further strength to the thoughts that came out of the Skype purchase. eBay is moving into the payments world in a big way; it's establishing a stable of user bases that all trade money around a common payment system.

So why Skype? Firstly, the Skype user base chews through lots of little payments in the SkypeOut service. And they aren't going to stop doing that. Secondly, Skype is secure (**) and has a downloaded client base with a plugin architecture. For business people that's very ho-hum, but for students of money, that's golden. Thirdly, Skype has the communications future all sown up: it's chat and it's IM. The significance of this is immense when you consider that PayPal is web, it's email, and it's ridden with fraud with no end in sight.

And, what held back Skype? Access to payments. Within their world, people had to work very hard to get money into the accounts so they could do the SkypeOut thing. Obviously nobody was that interested in helping Skype get access to payment systems on a mass scale. With eBay's clout, and VeriSign's mature payments business this is a solved problem.

Look for Skype to integrate a payment system some time. It might be branded PayPal but it probably won't be the same thing under the hood (or bonnet). Also, look to eBay buying more user bases and more facilitation architecures (e.g., plugins) that are small-payment oriented. (I can think of one right now, but people will be angry if I state it ...)

Risks: the same thing that happened to Bill Gates when he said he wanted to get into payments. When the banks realise that eBay is building a bigger and better payments infrastructure, they will complain to their mamas and papas and ask them to go beat up the bad boy. (Problem is, the rationale for discrimination of payments v. banking v. business is pretty darn weak these days, so if eBay has its eye on the ball, this won't be the slam dunk that Bill G had to accept.)

Recommendation: eBay is probably a buy if this is really their strategy.

(**) I mean here, more secure than the alternate which is approximately PayPal.

Posted by iang at October 12, 2005 10:07 AM | TrackBack

Interesting, indeed. I talked to the skype guys a year ago asking them why do they not allow transfering skype-out minutes (it looked like the perfect commodity to back ePoints) and they said it was part of the business model, without elaborating on it. I guess, what he meant was that they didn't want users to buy minutes from one another; instead, they wanted them to buy all of them from SkyPe.
They gave me a bunch of skype-out time to play with in the form of top-up codes (about 3 hours or so), which I successfully sold for ePoints, but the problem is, that I cannot buy them from users with the purpose of selling them on. I hope they change this attitude.
They would make a lot more money through seignorage, if they let SkyPe minutes to be freely traded, because then people would buy them for the purpose of trading, not just talking. But a year ago, this idea was clearly beyond them.

Posted by: Daniel A. Nagy at October 12, 2005 01:59 PM

People actually do this in Africa. Mobile phone minutes are a fungible easy-to-transfer commodity, so they serve as a form of money in many places.


Presumably the phone companies will have to start setting-up money laundering units, etc...

Posted by: Thomas Barker at October 14, 2005 02:23 AM
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