TELECOM Digest OnLine - Sorted: When PayPal Becomes the Back Office, Too

When PayPal Becomes the Back Office, Too

Monty Solomon (
Mon, 19 Dec 2005 01:47:49 -0500

December 18, 2005

WHEN C. J. Liu bills her clients, all it takes is a few mouse clicks,
and for the most part their payments end up in her bank account a few
days later. She does not need an assistant to send out invoices or to
track accounts payable and receivable. She never has to wait for
checks to arrive in the mail, and she does not have to visit the bank.

Like many others who run small businesses, Ms. Liu, who offers
business and personal coaching in Seattle, is a PayPal customer.

From its inception seven years ago, PayPal, based in San Jose,
Calif., has grown to service more than 86.6 million accounts in 55
countries, and it expects to process $25 billion in money transfers
this year. About 70 percent of the payment volume comes through
PayPal's parent company, eBay, and is used to buy and sell items on
the Internet. But more and more, small businesses and sole proprietors
outside of eBay are using PayPal as their back offices.

Merchant services is "one of our biggest areas of focus for growing
the business," said Sara Bettencourt, a spokeswoman for PayPal.

Ms. Liu can send e-mail invoices to her clients by clicking on the
PayPal Web site. The clients -- who, at Ms. Liu's request, have also
set up PayPal accounts by registering bank account or credit card
information -- click on a button embedded in the message to charge the
sum to their credit cards, and the money is transferred to Ms. Liu's
PayPal account. Along the way, Ms. Liu receives confirmation when the
bill has been paid and can review the status of her accounts
receivable online.

Based on her business volume, less than $3,000 a month, Ms. Liu pays
2.8 percent of her total sales, as well as 30 cents a transaction,
for this service. "It saves me the hassle of the billing side," she
said, "so I can concentrate on my client work."

Many of the newest and smallest businesses find that using PayPal is
more cost-effective than turning directly to a credit card company to
process transactions. A new business may be charged much more by
credit card companies because it may not have much sales volume or
credit history, said Avivah Litan, a research vice president at
Gartner Inc.

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