Yahoo, eBay Payment Partnership Said Growing Faster Than Expected

Feb. 13, 2008 (Investor's Business Daily delivered by Newstex) --

Yahoo and eBay's (NASDAQ:EBAY) PayPal unit are shrugging off recent moves by Google to tie its online payment service more closely into its massive Web search business.

The service, which serves as a sort of online wallet, will remain free of charge for nine months to merchants that buy ads on Yahoo (NASDAQ:YHOO) YHOO, the Web's most visited portal.

But the service will eventually begin charging, regardless of what Google does, says Stephanie Tilenius, senior vice president of eBay marketplaces, which overseas PayPal operations.

"We are not going to have it free forever," she said. "We implemented the program to see if it would work and we have had so much success with it we will probably continue it for a while longer."

Google GOOG, the Web's No. 1 search service, has offered its Checkout service free to any merchant for more than a year. But this month, Google began charging nonadvertisers for it -- putting the service roughly on par with Yahoo PayPal. (See related story, this page.)

Yahoo and PayPal, owned by eBay EBAY, launched Checkout in April 2007, about a year after forming a "strategic partnership."

PayPal has long offered payment services to outside retailers, though most customers use it to send payments for items purchased on eBay's auction site. Yahoo hopes to expand its e-commerce offerings, while PayPal wants to expand its reach to non-eBay sites.

Like Google Checkout, Yahoo PayPal Checkout aims to make it easier and safer to make purchase on a wide range of retail sites. The services store personal information such as name, address, credit cards and bank account numbers so users don't have to provide that info to an unfamiliar merchant.

Users no longer have to type in personal information each time they make a purchase online. The service provides a buffer between retailers and customers to protect consumers' personal information.

Tilenius sees huge potential in online merchant payment systems.

"(Google is) trying to experiment with merging search and payments; we in our Yahoo partnership are doing the exact same thing," she said, adding that linking ads to online payments makes sense.

PayPal won't say how many consumers or merchants have signed up. But the turnout is better than expected, Tilenius says.

"We have seen great traction," she said. "We have signed up thousands of merchants."

Advertisers that sign up for Yahoo PayPal Checkout get a special label attached to their ads. According to Tilenius, merchants who have signed on to the Checkout service have reached more customers and improved sales.

"Our conversion rate through our Checkout service is 40% higher than the average conversion rate on the Web, so there is a very strong value proposition for those merchants," she said.

Google reports a similar increase for advertisers that use its Checkout service.

One way the Yahoo PayPal version has stood out is by offering consumers a wider variety of payment options, including debit cards and bank transfers through PayPal, says Bruce Cundiff, research director for Javelin Strategy & Research, a research firm. Google Checkout, by contrast, is not an alternative form of payment -- just an alternative process for traditional methods of payment, he says.

Yahoo is likely pairing with PayPal to attract more advertisers while avoiding having to build a third wheel, says Sameer Mithal, senior principal for IBB Consulting.

"Yahoo has a lot of e-commerce transactions (from their advertisers) and they don't want to build their own payment system because PayPal and Google Checkout already exist," he said.

Yahoo closed its own payment service, called PayDirect, about four years after launching it in 2000. PayDirect was set up mostly to serve Yahoo's online auction service, which Yahoo shut down in June.

Google's Checkout service, meanwhile, has grown to more than 100,000 merchants since its debut in June 2006.

It ended December with 1.5 million visitors, down from 1.7 million in December 2006, says market tracker Nielsen Online.

Yahoo PayPal Checkout finished December with slightly more than 1 million visitors in December, up from 843,000 in November.

PayPal, meanwhile, received nearly 20 million visitors in December vs. 19.1 million a year ago.

In 2012, PayPal will handle 11% of online retail transactions, up from 5% last year, Javelin's Cundiff says.

via CNN $

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