A Business Looking for a Cheaper Way to Process Credit Cards

eBay's PayPal to buy VeriSign unit for $370 mln. eBay Inc. will buy VeriSign's payment processing business for $370 million and merge it with its PayPal unit as part of a wider e-commerce payment services and security alliance, the companies said on Monday.

(PRWEB) January 8, 2006 -- The move was seen as letting PayPal, already the largest online payments company, expand faster beyond its core audience of eBay-based transactions and to compete better with credit cards as an online-payment system, analysts said. VeriSign's payment gateway software connects Web businesses with payment processors generally run by major banks. VeriSign also is the dominant supplier of software used to manage secure credit card transactions between consumers and Web sites. PayPal said the payment gateway business would generate an incremental $100 million of revenue for it in 2006. VeriSign Inc. shares rose 5.2 percent to $21.08 in after-hours trade following the announcement of the deal. Shares of eBay were unchanged, after closing up 56 cents, or 1.4 percent, to $40.46 in Nasdaq trading ahead of the news. Legg Mason analyst Scott Devitt said the deal promises to give PayPal a leg-up in becoming the accepted payment mechanism system on VeriSign's 100,000 or so small business sites. "Strategically the deal absolutely makes sense," and was at a favorable price, relative to revenue acquired, for eBay. VeriSign's payment software system -- which handled more than $40 billion in payments during 2004 -- will help PayPal expand its push into the merchant services market, analysts said.

PayPal Inc. made a move Wednesday that the big card companies have long resisted - it cut its fixed transaction fees for purchases under $2. "The opportunity for PayPal was to address the micropayments issue, and we went straight at the issue by reducing the fixed fee," said Peter Ashley, the eBay Inc. unit's director of digital content and micropayments. Analysts said this could help PayPal further diversify outside its parent company's business, online auctions, and stimulate the sale of low-cost digital content online if merchants adopt the new option. John Gould, a partner with Prepaid Advisory LLC of Boston, said, "PayPal has had, for some time now, the ambition to become an alternative to MasterCard and Visa, and they are aggressively establishing themselves not just at eBay, but now, for micropayments." Merchants may promote PayPal instead of cards because of this new option, Mr. Gould said. "The merchants do not have control of the pricing when a MasterCard or a Visa or an American Express card is used," he said. They will not drop the major card brands entirely, however. "They will offer this as an additional payment mechanism," Mr. Gould said. For complete details click on the link attached to this press release.

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