Press Centre

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PayPal virtual cards boost online card payments

Cards International
4th August 2006

Online debit will get a huge boost from the arrival of one of cyberspace’s major payments brands. PayPal is testing a MasterCard-branded virtual debit card that could dramatically expand the number of merchants accepting its payments while providing a real shot in the arm for debit in the online channel.

JPMorgan Chase will ‘issue’ the card – it exists only in electronic form – while First Data will be the transaction processor, according to PayPal, a unit of eBay.

Using technology supplied by New York- and Dublin, Ireland-based software firm Orbiscom, the virtual debit accounts are to fill in the gap for PayPal stored-value account-holders to pay for purchases at online merchants who do not accept PayPal but take MasterCard by using their PayPal funds in a debit transaction.

A card user must have funds in a PayPal account and they can then download software from PayPal’s website. When the user visits an online merchant, the user is asked if they would like to use the PayPal virtual debit card, upon which the user is given a one-time debit card number valid only for that transaction.

The card number also comes with a card validation code. If users want to make a purchase with their card but lack sufficient funds in their PayPal account, they transfer money from their bank account using the same transfer mechanism that PayPal customers already use to top up their PayPal accounts from their checking accounts. Alternatively, they can top up their virtual debit card using the PayPal Buyer Credit line of credit or from a PayPal Plus credit card.

The virtual debit cards will enable PayPal’s customers to shop online with the funds in their PayPal accounts at any merchant that accepts MasterCard International cards. Amazon, for example, takes credit and debit cards but not PayPal, as is the case with many large internet retailers.

PayPal, the payments division of online auction house eBay, reported transaction volume worldwide of $8.8 billion by 105 million customer accounts in the first quarter. PayPal also added 8.7 million accounts during the quarter, reaching a total of 114 million accounts worldwide.

The San Jose-based company has had moderate success in convincing merchants to accept payments from PayPal accounts, but its virtual debit card removes that obstacle altogether, giving consumers the choice of whether to use PayPal or not, at any MasterCard-accepting location.

PayPal has been working to become a more accepted payment method outside eBay auctions. Over the past two years it has become an option for large e-commerce sites run by Apple Computer and Dell.

However, it still lags far behind the major credit card companies in acceptance among online merchants. According to the electronic payment software company CyberSource, about 97 percent of online merchants accepted cards last year, but only 23 percent would take PayPal.

PayPal is testing the software now with its employees and plans to roll it out for free to its US customers over the next six months.

http://www.cardsinternational.com

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