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EBay's PayPal going offline

Jul 21 2011 07:12 Reuters

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San Francisco - EBay's PayPal business has become one of the largest online payment systems, but its now heading offline, chief executive John Donahoe said in the wake of the e-commerce company's quarterly results on Wednesday.

"We intend to help retailers grow their businesses offline in the same way we helped merchants grow online," Donahoe said during a conference call with analysts.

PayPal will be testing "point-of-sale innovation" with a major US retailer by the end of this year, he added.

During 2012, PayPal will roll out in-store payment services with up to 20 national retailers, Donahoe predicted, without identifying the companies.

EBay reported second-quarter results late Wednesday that were dented by acquisition costs, and the e-commerce company forecast third-quarter profit just below analyst forecasts, sending shares 1% lower to $32.58.

PayPal reported $1.073bn in second-quarter net revenue, up 31% from a year earlier. That's the first time PayPal has generated more than $1bn in quarterly revenue.

PayPal's growth has been driven by online payments. But Donahoe said on Wednesday that the boom in smartphone usage is blurring the lines between online and offline commerce.

"We've had merchants reach out to us quite aggressively, and saying they want us to bring PayPal into the Point of Sale," he added. "We see it as an incremental opportunity, and a fairly significant incremental opportunity that will play out over the next three to five years."

Ken Sena, an analyst at Evercore Partners, said investors want eBay to pursue the offline payments opportunity more aggressively.

One way may be to partner with daily deal companies including Groupon and LivingSocial, Sena said. Donahoe said eBay would consider such partnerships.

EBay has stressed that it's agnostic about what mobile payment standards emerge as the dominant technologies, arguing PayPal will work with all platforms.

Near-Field Communication, or NFC, is one emerging technology that may let shoppers buy with their mobile phones.

Evercore's Sena said eBay hasn't described a strategy to help create the main standard. The concern is that once the standard is established, PayPal may not be the main way to pay.

"That's dead wrong," Donahoe told Reuters on Wednesday. "Merchants will make the decision."

The only standard that will be accepted by big merchants will be one that accepts all payment systems, including those run by MasterCard, Visa and PayPal, he explained.

With roughly 100 million "wallets in the cloud" PayPal is too big to be excluded, Donahoe added.
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