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PayPal's Virtual MasterCard

The Nilson Report
July 2006

JPMorganChase is issuing a MasterCard product for PayPal that can only be used for purchases on the Internet. No plastic cards will be issued. Technology from Orbiscom provides a one-time-only MasterCard account number valid for a specific transaction. That 16-digit account number comes with a linked 3-digit card verification value code. PayPal is testing the product and expects to make it available to all of its U.S. customers in September.

Funds to pay MasterCard Web merchants come from the consumer’s existing PayPal account, which can be replenished with a bank transfer, debit card, or credit card. Because anyone with an existing Visa or MasterCard credit card or debit card wouldn’t need the virtual card to reach a larger number of merchants, this set of customers would be using it primarily for online security. Most customers are expected to come from the set that doesn’t have a credit or debit card. PayPal offers a MasterCard debit product with an actual plastic card using First Data Corp. as its processor. FDC will also process for the virtual MasterCard. Chris George is Senior Director at PayPal in San Jose, California, (408) 376-6151, cgeorge@paypal.com.

Orbiscom’s technology, which it calls controlled payment, is used by Universal Air Travel Plan’s (UATP) Air Plus International card-issuing licensee in a program that is similar to PayPal’s. It can be used by business travel managers whenever an online travel merchant doesn’t accept the UATP card for payment. The virtual MasterCard account number ultimately connects to the manager’s UATP account.
However, most cardholders use Orbiscom’s technology to secure Web purchases with a substitute Visa, MasterCard, or Discover account number. To generate the account numbers, consumers either download software from their issuer’s Web site onto the toolbar of their PC, or go to the issuer’s Web site each time they want to make a purchase.

Orbiscom’s three U.S.-based clients are such large issuers that a majority of the transactions it handles are initiated by U.S. cardholders. Bank of America’s MBNA subsidiary and Discover card have been clients since 2000, and Citibank has been a client since 2002. In Europe, Orbiscom clients include Air Plus, Swedbank, Citibank, Societe Generale, La Poste, and Caisse d’Epargne. Customers on both sides of the Atlantic find that 5% to 10% of their cardholders use the virtual card. As more cardholders interact with their issuer’s Web site, the number of people using Orbiscom technology grows.

Issuers pay Orbiscom a licensing fee and usage fees. The company’s business has been doubling every year. Orbiscom’s largest stakeholder is venture capital firm Hg Capital in the U.K. Diane Shaib is Executive VP at Orbiscom in New York,
(212) 847-3801, diane.shaib@orbiscom.com.

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