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The Almighty Buck

PayPal Goes Public 166

Posted by michael from the hip-hip-hurrah dept.
fluffhead234 writes: "Looks like IPO's for internet companies can still bring in something. PayPal, the online payment people, raised just over 70 million in their IPO: PPay Pal IPO"
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PayPal Goes Public More

PayPal Goes Public

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  • Pay Pal and Ebay (Score:3, Informative)

    by Hunts ( 116340 ) on Friday February 15, 2002 @09:01AM (#3013103) Homepage
    All very well and good. But the vast majority of their business relies on E-Bay which may or may not, be developing its own payment system.. I'm sorry but the whole thing still seems on very shaky ground. Oh and it still aint great if your outside of North America.
    • Actually, eBay does have its own payment system [billpoint.com].

      OK,
      - B

      • There is a plethora of P2P payment services from the big financial services firms(c2it [c2it.com] by Citi) to regular banks and such.

        Of course, VISA, MasterCard, American Express and the other associations all have "initiatives" to understand and exploit P2P payments. I think it's great that PayPal has gone public. Wether they make it, are acquired, or burn through the 70 mil raised, at least it will put some more publicity on the P2P payments market.

        Anything that shakes up the current merchant-issuer-acquirer-association arrangement might bring reduced rates and a more competitive environment.

        • What is "peer to peer" about c2it ? As far as I can tell, it is a system where a transaction moves money in accounts on a central computer. Isn't that what paypal is ?

          Also, VISA, MasterCard, American Exprese, and the other associations you so breathlessly refer to aren't peer to peer either.

          I think you are confusing the term "peer to peer" with the idea of allowing account holders who normally only deposit paychecks and then buy things to also receive other payments into the account. But letting each account be a "merchant account" is not peer to peer, it's just a shift in the way people are using money.

          A peer to peer payment system would not require that you have an account with some corporation. It would associate a person with a GPG or PGP key, and whether or not to trust the IOU or payment would be up to the receiving party, using something like PGP's web of trust. In that case the account creation, decisions about trustworthyness, and all the other details of a payment system are pushed down to the user level -- each person can be his own bank, so to speak, and they are all equal in the eyes of the protocol and system (but not in the eyes of other users, perhaps). That's peer to peer.

    • Re:Pay Pal and Ebay (Score:2, Redundant)

      by phil reed ( 626 )
      But the vast majority of their business relies on E-Bay which may or may not, be developing its own payment system.


      Ebay owns Billpoint, a payment system. It's absolutely terrible.

    • Re:Pay Pal and Ebay (Score:2, Interesting)

      by ackthpt ( 218170 )
      Sure a chunk of it is EBay, but I'm finding, just this morning, another dealer on the web accepting payment through PayPal. EBay, AFAIK, espouses Billpoint, to the extent that it's a standard option for payment.

      As a buyer, Paypal is nice, because they accept Amex, where other services don't, and I prefer to use the green card. As an occasional seller, I don't use them anymore due to restrictions they claim have been imposed upon them, limiting the amount that maybe transferred from one person's account to anothers. Last I used it it was only good for $100/mo, now I can't receive cc payments unless I sign up for more service, which I haven't done, but expect the fee schedule to be less than welcome, from dealers I have talked to.

      On another tack, I'm not too surprised the IPO was only for 70 million, investors aren't as likely to run willy-nilly (a highly technical term) to throw money at. I think Paypal does have a bright future, particularly since they've made it easy for me to buy and sell things to people overseas, and I have a contact here, if it goes wrong. I'd just like more insurance, when the seller withdraws all their funds and runs away without sending anything, rather than a confirmation.

      "Yep, they ripped you off, bud. How else may we be of service?"

      • The problem with Amex is its fees are generally higher, and those sufficiently creditworthy to have an American Express almost always have a Visa or MasterCard as well, and are used to grabbing it when they hear "Sorry, we don't take American Express."

        American Express, though, is making inroads--heck, even Wal-Mart takes them now. And there's nothing much more ironic than watching someone pull out his tres pretentious Platinum Card (no longer all that--the real elite have the Centurion black one) and hand it to the Wal-Mart cashier for diapers and soda pop.

        • While Amex fees may be higher it is the de-facto standard for corporate cards and therefore it is a huge advantage that PayPal now accepts them.
          • Also, it's the best card for travel, since Amex has offices throughout the world you can go to for help, exchange and other services. Membership does have some tangible benefits.


            When crossing the border, it's about as important to have as the passport, IMHO.

            • Also, it's the best card for travel, since Amex has offices throughout the world you can go to for help, exchange and other services. Membership does have some tangible benefits. When crossing the border, it's about as important to have as the passport, IMHO.

              Your mileage may vary. I've found Visa and Mastercard much more accepted in the U.S., to say nothing of foreign countries. Sure, you'll find establishments that accept it overseas--but I think you'd be hard pressed to find any establishment that accepts AMEX and doesn't accept Visa/Mastercard.

              Sure, AMEX has branches around the world that can help you in certain cases. But still, I won't leave home without my Visa/Mastercard. I've never missed not having AMEX.

              As a vendor, I don't accept AMEX either. Their discount rate is about twice that of Visa/Mastercard.

              The only thing AMEX has going for it is its name and "tradition" as "the" business card. That's only going to last so long. Either AMEX has to become more affordable for both merchants and customers or they will become irrelevant.

              • I think you'd be hard pressed to find any establishment that accepts AMEX and doesn't accept Visa/Mastercard.

                Not really. [costco.com] (They're the only one I've run across, though...)

        • I wish Fry's [google.com] would (the big tech store chain), but the dingbats behind the counter seem trained to explain these fee differences to me, like I could care. They don't take my card, I shop elsewhere. My visa is actually a check cart, which is the way I prefer to keep it.

  • Who needs an IPO? (Score:5, Funny)

    by glh ( 14273 ) on Friday February 15, 2002 @09:01AM (#3013104) Homepage Journal
    Why on earth do they need to raise funding through an IPO when they have all those frozen accounts [paypalsucks.com] to dip into?? :)

    • Re:Who needs an IPO? (Score:5, Informative)

      by SilentChris ( 452960 ) on Friday February 15, 2002 @10:43AM (#3013385) Homepage
      I never understood the logic about this. Yes, you can leave your money in a PayPal account to earn a (tiny) amount of interest. But why would anyone do that if they're not a bank and not FDIC-insured. I generally withdraw my money out of my account as soon as I make it on an eBay auction, and for that purpose PayPal serves me just fine.

      I think anyone who's using PayPal as a bank account is either a) lazy or b) just plain stupid. Like the people who invest in "great opportunities" only to be burned -- you've got to do your research.

      • Re:Who needs an IPO? (Score:3, Insightful)

        by jordan_a ( 139457 )

        Well if you are a power seller, or just have a large money transfer it could be a real hassle. Many of these stories involve people who have gotten a large payment, and then before PayPal will give them the money they freeze theyaccount.

        The people frozen accounts don't earn an intrest on this money, but PayPal does.

  • paypal (Score:5, Informative)

    by nomadic ( 141991 ) <`nomadicworld' `at' `gmail.com'> on Friday February 15, 2002 @09:03AM (#3013109) Homepage
    Looks like IPO's for internet companies can still bring in something.

    IPOs always bring in something; an IPO just means that the institutions that are underwriting it buy a set amount of stock, then offer it for sale on the market. The company itself risks nothing, as the stock was bought for an agreed-upon price beforehand.

    If the stock tanks, they still get 70 million.

    • Re:paypal (Score:3, Insightful)

      by dgb2n ( 85206 )
      Actually, no this isn't entirely correct. Depending on the investment environment, the initial price set for a stock IPO can vary widely.

      For example in a strong market an underwriter might set a target IPO price at $20 per share initially but based on the level of institutional demand raise the initial IPO price to $30 per share. This will yield an additional 50% working capital for the company going public.

      The converse is also true leading to IPO's being delayed or cancelled altogether. Without sufficient institutional and investor interest, either the price of the initial offering must decline (decreasing the capital provided to the company) or the underwriter will cancel the IPO. All this happens prior to the actual IPO date
      • There's two ways to do an IPO. The most common one is that the underwriter(s) buy all of the stock at a certain price from the issuing company, and if the stock price rises during the IPO, then the underwriter pockets the difference. It's their compensation for taking on the risk of buying all the stock (gross margin). The difference between what the underwriter paid and what the underwriter sold the stock for during the IPO is part of the cost of the IPO (spread), and if the stock price explodes, then you have a lot of weepy executives back at the issuing company, because they sold their stock waaay too cheap and missed out on a boatload of cash.

        Far less common would be a scenario where the underwriter promises to do their best efforts to sell the IPO stock, and they can return any unsold shares. Obviously, there's far less risk involved for the underwriter, and thus far less reward.

        In the former scenario, the underwriter has strong motivation to sell the stock and to get the best price possible. In the latter, the underwriter may not be willing to expend as much energy because their profit is relatively slim.

  • internet revenue revival (Score:3, Interesting)

    by xtstrike ( 538546 ) on Friday February 15, 2002 @09:03AM (#3013110) Homepage
    Maybe this is the start of another internet boom, it seems after the marketing lows of the internet where companies were failing constantly after 6 months in action the tides are turning. The companies that have entered into business on the internet, such as paypal with a sound business idea are now starting to get the rewards they deserve.

  • Market Value (Score:3, Insightful)

    by Mattygfunk ( 517948 ) on Friday February 15, 2002 @09:04AM (#3013112) Homepage
    Based on the offering price and total number of shares, PayPal had a market value of $777.4 million after the IPO.

    I thought dot coms were dead, useless, gone. That's pretty good money for a dot com, in a recession, thats being sued.

    • Unfortunately, unless some serious changes are on the way I don't see PayPal sticking around. Anyways dotcoms were never dead, the wheat got separated from the chaff is all.
    • I wouldn't call PayPal a dot com (bomb), however. They have something most dot coms lack: a good business model. If they manage to become the number one P2P transaction provider, they'll be worth much more than 777.4 million, I'd wager.
      • They have something most dot coms lack: a good business model.

        One wonders how good a business model can possibly be, if they have to keep changing it constantly. "Oh, we don't have to charge you a fee, we just invest your money..." "...okay, that wasn't working, now we have to charge you fees..." "...oh, and you can't accept credit cards unless you get our Pay Extra to Accept Credit Cards package..."

  • Remarkably Ironic... (Score:4, Interesting)

    by mikeage ( 119105 ) <.slashdot. .at. .mikeage.net.> on Friday February 15, 2002 @09:06AM (#3013117) Homepage
    I think it's interersting that paypal both created (and jumped on) a new marketplace: easy, convenient, secure online funds transfers _for_the_little_guy_. Thanks to Paypal, instead of paying 2-3% to Visa/MC (Amex is the worst: it used to be 7% surcharge) and getting a credit card scanner, anyone could accept credit cards. But then they blew it. Poor security, aweful customer service... I was an early adopter, and really liked the service when it came out. They saw a market, assessed the needs, and then... ignored them. Oh Paypal, what happened? You could have been so great... but now they're just one of a thousand.
    • I think it's interersting that paypal both created (and jumped on) a new marketplace: easy, convenient, secure online funds transfers _for_the_little_guy_. Thanks to Paypal, instead of paying 2-3% to Visa/MC (Amex is the worst: it used to be 7% surcharge) and getting a credit card scanner, anyone could accept credit cards. But then they blew it. Poor security, aweful customer service...

      Not to mention the fact that they no longer allow you to accept credit card payments without a fee... you now have to pay 2-3% (and have a "preferred" membership) in order to accept a payment which comes from a credit card.

  • Big Risk (Score:3, Informative)

    by JJ ( 29711 ) on Friday February 15, 2002 @09:07AM (#3013118) Homepage Journal
    Since payPal is being sued over its primary technology, this stock would be very risky.

    • read about it (Score:4, Informative)

      by bdavenport ( 78697 ) <spam@sellthekids.com> on Friday February 15, 2002 @09:16AM (#3013141) Homepage
      here! [wired.com]

      this actually held up the first attempt at an IPO several weeks ago.

      another thing to remember is, unlike most business that IPO today (and not in the .BOOM), paypal doesn't and hasn't made a profit. keep that in mind.

      • Re:read about it (Score:2, Informative)

        by limber ( 545551 )
        I guess this IPO won't do that well in Louisiana [usatoday.com], where that state's banking regulators have deemed it an unlicensed banking operation.

        Monday's filing conceded that the company's regulatory problems in Louisiana might not be isolated. New York has also indicated the company is operating an unlicensed banking operation. Other states that have indicated a need for licensing include Arizona, California, Colorado, Idaho, Massachusetts, Maryland, Texas, Virginia and Vermont.
  • I tried to sign up on pay-pal for one of my web sites, but they wouldn't accept one of illinois largest bank chains because of "Security Procedures".

    this is despite the fact that up until a year ago they were accepting accounts from the bank.

    Even though the bank has been secure for them this whole time, they REFUSED to sign my account up.

  • Cool. (Score:3, Insightful)

    by acceleriter ( 231439 ) on Friday February 15, 2002 @09:10AM (#3013131)
    Maybe now as a public company, PayPal will have to have some accountability to buyers and sellers, instead of hiding behind autoresponder bots and generally being difficult to contact.

    Fortunately, for online auctions, there's viable competition, particularly eBay's own Billpoint.

    • Good point.

      The only thing to note is that Billpoint is orders of magnitude smaller than PayPal in terms of the amount of payments they accept. They have never posed any real threat to PayPal in the past.

      However, it should be noted that Billpoint is backed by Wells Fargo, who is a major component to the banking lobby. The lobby may play a big part in slowing down PayPal's business in the near future, which may fuel Billpoint's growth.

    • Autoresponder bots? Try actually getting one of them on the phone, asking for clarification of a problem, etc.

      Once I found myself in the whole debit-card doublecharge problem that most PayPal people end up in once. The person I got on the phone for that problem was helpful in WHAT they were saying, yet very terse and defensive. After a few horrible phone calls in the past to them, I wanted to take down his name and extension so that I could use him in the future and avoid the other drones. After I asked for his name and extension he snapped, "What, to threaten me? Is this some sort of a threat?" and hung up on me. And that was my most POSITIVE customer service experience from them.
  • A company that is supposed to to protect our private financle interests answering to the common stock holder ... So when it tanks does this mean they will dip into our credit cards/bank accounts to stay afloat and please the share holders?

    All your accounts are ours!

    TastesLikeHerringFlavoredChicken

  • PayPal & Ebay (Score:5, Insightful)

    by jeremyf ( 167087 ) on Friday February 15, 2002 @09:12AM (#3013134) Homepage
    Just like Ebay, Paypal is successful (and I mean by # of users and money exchanged, not profit-wise, which only ebay has attained) because they were first. Both charge higher rates than their competitors without any better service or features.

    Ebay has a bunch of users because their business model requires that many people come together in one place; Yahoo Auctions, for example, are horrible in comparison if only 1/2 the people use them (and the #'s aren't even that high).

    PayPal just basically rode off Ebay's success and Ebay's lack of making any decent alternatives (BillPoint started off way too expensive and full of hassles).

    Does anyone remember the LONG period where PayPal gave $5 to each user and $5 for each referral, even if you never used their service? I had a slightly popular website and made nearly $200 off of referrals. I've used PayPal, but only as a sender, so I've never given PayPal a dime back.

    I think PayPal is near the peak of its popularity; once ebay's BillPoint starts getting more users (as Ebay is pushing it more on users and the fees are more reasonable for the market) and better alternatives arise (like citibank's c2it for a bad example), PayPal will decline in popularity. They haven't reached anything near a profit yet and I doubt they ever will.

    Jeremyf's rating: Sell
    • Does anyone remember the LONG period where PayPal gave $5 to each user and $5 for each referral, even if you never used their service? I had a slightly popular website and made nearly $200 off of referrals. I've used PayPal, but only as a sender, so I've never given PayPal a dime back.

      Actually, you did. First off, it's important to understand that PayPal makes its money off of the float; i.e., off of the interest earned on the money in its coffers between the time it's deposited and the time it's withdrawn. And because PayPal only receives cash electronically, there's no lag time waiting for deposited checks to clear; the money can be put to work immediately. If someone requests that PayPal cut them a check for their account balance, then PayPal continues to accrue interest on that money during the time it takes to travel through the mail and then clear through the bank. The short of it is, if you've moved any money through their system, then PayPal has been making money off of you.

      Secondly, you've made $200 off of referrals; you've thus referred 40 people. You may not have maintained a balance for very long, but some of those 40 people probably did, and if those 40 people referred an additional 40 people, who referred an additional 40 people, and so on, then you can see that your recruitment efforts have had a significant impact.

      Third, PayPal had set its cost of acquiring new customers at $10, and they did it through a very efficient referral program. Millions of people do their marketing for them, and they only pay out when a new customer is actually acquired. Compare that to the gamble of doing a multi-million dollar advertising blitz that may (or may not) result in a significant increase in new customers. You've helped PayPal save a ton of marketing moolah by promoting their referral program, and doing a pretty good job at that.

      Lastly, when PayPal pays out for its referral program, it pays directly into your account. A lot of people won't take out that money right away. So, even though they've paid out their marketing expenses, that money is still working for them! Very slick. In fact, it reduces their customer acquisition costs. On paper, they pay out $10 for new customers, but the net cost is probably something much lower. Again, back to the 40 people... you may have withdrawn that money immediately, but odds are that many of them didn't, nor did many of the people they referred.

  • Financial analyst view (Score:5, Informative)

    by mgkimsal2 ( 200677 ) on Friday February 15, 2002 @09:15AM (#3013139) Homepage
    There's a an article over at http://www.ipofinancial.com/pow/archive.php?oid=10 4 [ipofinancial.com] which has a bit more info, from a financial analyst's viewpoint, but in plain english.
  • Remember this, from a /. story a while back?
    No PayPal [nopaypal.com]

  • Warning signs... (Score:5, Informative)

    by PoiBoy ( 525770 ) <brian.poiholdings@com> on Friday February 15, 2002 @09:21AM (#3013151) Homepage
    Note that although they only sold 5.4 million shares in the IPO, there are 59.8 million shares outstanding. Hence, there is a large overhang of stock which may be sold after the lockup expires.

    In fact, there is a growing literature which suggests companies purposely limit the number of shares issued in the IPO. This low supply of shares causes the stock to rise in the ensuing days and months as additional investors purchase the stock and analysts begin issuing recommendations. After the lockup, insiders then begin to sell shares in earnest at these high prices which are at least in part due to the manipulative effects of a small number of shares offerred at the IPO. In short, while there may be short-term gains to be made in the stock, be cautious after the lock-up expires.

    Also note that in the past two years the company has managed to lose 1/4 of a billion bucks and is not sure when it will be profitable. That's not exactly the kind of words that bring confidence in this market environment.

    Although the market for IPO's was much smaller in 2001 than in years past, those companies that did come public tended to be more profitable and had better business models and a proven record of success; and they performed relatively well. I don't think PYPL fits this mold, however, so LOOK OUT BELOW! (after a short run upwards).

    • This is not entirely accurate information. There may or may not be a "large overhang" of stock. Companies NEVER sell all of their shares in a public offering, because the original owners/investors of a company will continue to retain their stake. While there is probably some amount of excess unissued stock out of those 54.4M remaining shares, it CERTAINLY isn't 54.4M shares -- most of those are owned by the VCs who have been funding paypal so far, and some of them are owned by founders.

      When a company goes public, it's not really becomming a fully public entity, rather it's just using public markets to set a price and value the company.

      And this "growing literature" you speak of is called basic economic theory...it's not some grand evil corporate scheme to defraud the everyday investor. Companies ALWAYS have sold a very modest (10 - 20%) stake to the public, and when their stock appreciates they'll issue more to raise more capital. It's a balance between supply and demand -- if they issue too many shares, there will be excess supply and the price will stay flat. If they issue too few (1 - 2%), it will artificially inflate the price and the stock will suffer (making the CEO and other managers look bad) when it drops later on.

      • Re:Warning signs... (Score:2, Informative)

        by PoiBoy ( 525770 )
        And this "growing literature" you speak of is called basic economic theory

        I was referring to the large number of articles appearing in the Journal of Finance, Journal of Financial Economics, and other leading finance journals as well as the plethora of papers being presented at conferences throughout the country. Although superficially it seems like "basic economic theory," the precise modelling of these strategies is rather daunting, as is the estimation of these models. Trust me, two more months and I'll have my PhD in Economics (with a chapter of my thesis on IPO pricing!).

      • The VCs and founders are the overhang that is being discussed. Normal IPO agreements require all major shareholders to sign lockup agreements. Now that Paypal has gone public, VCs will distribute their shares to their investors (VCs always deliver shares since a major VC turning all shares into cash would decimate the market). As soon as the lockup ends, the investors start dumping because most take a pretty conservative view toward stocks like this. If the stock can survive this dumping (and then insider dumping, which takes a while due to negative PR, but is almost a certainty since so much of their net worth is in the company), it should stabilize at its "real" value.

        For more examples, see numerous .BOMBS (eToys, The Globe come to mind).

    • If I were a short I'd be all over this. Only trouble with shorting is that it's too easy to get burned by people who know how to manipulate the market to the up side.

      I mean, come on. How do you run what is essentially a banking, credit and escrow service and LOSE MONEY. These guys must be some kind of financial geniuses to pull that off.

      Oh well, it's nice to know that the market can still be fleeced old-school. The only thing that's missing is a picture of some 20 year old millionaire.

  • From what I understand, PayPal is facing hard times, and the negative publicity they've been getting lately is not helping matters. I'm not sure I would want to put my money into a company in this situation. Raising money to expand your company is one thing, but a company raising money to stay afloat is never a good financial investment. With the whole Enron fiasco happening, I think people will be a little gun shy in investing in this company.

  • Now that they have all that money, they can lower the fees they keep raising every few months.

  • When Paypal started offering $10 just to start an account I thought they must have huge cash backing. But think about it for a second, they were giving away 10 paypal dollars not US dollars. They are "printing" their own currency and pegging it to the US dollar. Just look what recently happened to Argentina to see what can happen when you try to print money and keep it pegged to the dollar, their currency just dropped in value by half! So what is a paypal dollar backed by? I want to short the paypal, is there a secondary market where I can do this?
    • It's hard to short companies right after they IPO because they're "hard to borrow". Basically, it's not possible to short until brokerage firms are convinced they've got some people planning on holding the stock or can borrow the stock from somewhere else.
      • I am not talking about shorting the stock, I am talking about shorting the PalPal dollar. Right now they have pegged the PayPal dollar to the US dollar at 1 for 1. I think the Paypal dollar is worth less than than the US dollar. Which would you rather have, $10US in your pocket or 10 PayPal dollars in an account? I think the PayPal is worth about $0.75US so where do I place my bet? Do you remember Flooz and their online currency? which you rather have now, beenz or US$
    • There is no such thing as PayPal currency. When I signed up for an account, I received my sign-up bonus of $5 or $10 at the time. I made a purchase on Ebay and used PayPal. My sign-up bonus money was used to make some of the payment...this means PayPal credited me with real money, which they debited from their cash account.

      How is this different than my real-world bank giving me $25 for opening an account with direct deposit? I can go straight to the ATM or branch and withdraw it. US$ is US$, whether in paper form or an account balance.

      • You must not have taken Macroeconomics. Yes you are right a dollar is a dollar when it is in a bank, but when someone credits your "account" is it still worth a dollar. Remember Paypal is not a bank. An example, Right now I have $100 credit at Macy's, I would rather have the cash. I would be willing to sell someone that credit for a discount of say 20% So to me a Macy's dollar is worth 0.80 US$ Another illustration, I take $20,000 cash that was under my matress and deposit it in a bank, they credit my account. You want to buy a car but have no cash so you borrow $20,000 from the same bank and buy the car. The car dealer deposits the money in the same bank and they credit the car dealer's account. Now I still have a $20,000 dollar credit and the car dealer has a $20,000 credit. The bank just created $20,000! This example is why interest rates are so important and why banks are so heavily regulated and audited. Remember the savings and loan crisis, banks created 300 billion that just wasn't there.
        • Yes, but PayPal gives you 10 US Dollars, which you can transfer from your PayPal account to your checking account. Store credit is how you described it, but it's a different situation.

        • huh?? (Score:2)

          by radish ( 98371 )

          Ummm...you have a $20k credit and a $20k debt, which nets to $0. The dealer has $20k, so the total system value is the same as it always was (your $20k under the bed). Banking is about moving money around, storing it, and investing it, not creating it.

          Money cannot be created by any body other than the central national bank. Interest rates are important for lots of reasons, i.e. because they affect peoples tendancy to spend vs. save, and make the currency more or less attractive to overseas investors. That attractiveness affects the exchange rate, and therefore the fortunes of import/export businesses.

          W.r.t. to your Macys account - if you could walk into Macys and convert that credit to $ (as you can with PayPal) then I would say they value of a Macy credit is exactly $1, minus the cost of going there and physically getting it as cash. If that cost is $0 (as clicking a button on a webpage effectively is) then you end up with a 1:1 rate.

      • How is this different than my real-world bank giving me $25 for opening an account with direct deposit?

        When you deposit money in your account at a banks it is still your money. Customers accounts are show as a liability on the bank's books. What the bank is allowed to do with that moeny is limited by regulation, and how accessable that moeny is to you is also regulated. If the bank goes under you get 100% of your money back. If the bank catches on fire, is robbed, is sold, etc., you get 100% back.

        When you have money in your PayPal account it is not your money. PayPal is not a bank. They are not regulated. When you put money in your account you are paying PayPal for the "service" of holding and/or transferring that money.

        PayPal can do anything they want with that money, because it is theirs. They can put it in bonds or they can bet on the ponies. If they lose it all that sucks for you. If PayPal goes bankrupt, get in line with the rest of the creditors. If they are bought, sold, or dissolved -- good luck. PayPal has recently gotten in the habit of "freezing" accounts for arbitrary reasons and violating their own TOS when they are threatened with chargebacks.

        Last but not least, I know that I can walk into my bank on any day they are open and walk out with every penny of the money in my account in cash. When and how you can get money out of your PayPal account is entirely at the discretion of PayPal.

        These are all things that cause certain people to believe that at some point in the future PayPal "dollars" will be as useful as Flooz driving down the value relative to US$. Hence the question about shorting the PP$.
    • You could open an account and withdraw the $5 (I can't remember it ever being $10) right then if you wanted to.

      What most people really did of course, was to buy something on eBay to try out the service. I think it was a very successful way to gain market share, and I've used them ever since with no complaints.

      In any case, they were not "printing" anything.

    • No no, PayPal money is real US dollars, just like "Bank money" (you know, that number in your checking account that you don't actually ever seen in cash unless you withdraw it) is real US dollars.

      That's part of the success of PayPal, REAL dollars, not Floooz or Beans or Bullshitz.

      The $10 they gave out at the beginning generally NEVER LEFT PayPal's bank accounts, which was a bit of a clever thing for them to do, really.

      The problem with PayPal, they can do anything they want with your money, all they have to do is change the terms of service. Without banking regulations, there's no guarantee that your money will be there until you take it out.

      And I think you can short PayPal on the NASDAQ just like anything else..after a waiting period perhaps...

    • So what is a paypal dollar backed by?

      And by extension, what is a Federal Reserve Note (FRN) backed by? I don't have any on me right now, but I've looked before and it says... nothing. They used to say "payable in gold upon demand", or something similar, I believe, but not anymore. I also think they used to say, "backed by the full faith and credit of the United States" (or something similar), whatever that means. But now it doesn't even say that. So I'm stumped - as far as I'm concerned, FRNs are worthless, and it's only through the miracle of mass dellusion that you can get people to trade you physical items for pieces of green paper.

      Support real money - accountable in actual physical ounces of gold, silver, platinum or palladium. Use e-gold [e-gold.com].
      • gold, silver, platinum or palladium

        And what makes these things "real" money anymore than green paper?

        Sure, they have a higher physical scarcity level, but all you're really doing is trading one monetary token for another. In neither case would your currency have any inherent value for most people. You can't eat it, live in it, drive it, compute with it, or be entertained by it -- it has no utility whatsoever except its capacity to be freely exchanged for some other good or service. And that takes just as much mass delusion for gold or silver as it does for FRNs.

        Money is a useful work of fiction. Yep.

      • Federal Reserve Notes are backed by government debt :) They're valuable because people want them, and they're relatively scarce (at least controlled supply). That is the same as for your precious metals. The only reason gold is valuable is because it's rare/scarce and people want it. Its practical value as a counductor and a ductile metal resistant to oxidation is pretty limited.

        Reserve notes help to create a much more efficient trading economy than mere bartering could hope to accomplish. If you don't agree with this, then try to trade a computer program, or whatever else it is you make, for everything that you need to buy. It might work one time, but I doubt you could survive for more than a couple weeks like this.
      • And by extension, what is a Federal Reserve Note (FRN) backed by?

        The 82nd Airborne Division :-).

    • So what is a paypal dollar backed by? I want to short the paypal, is there a secondary market where I can do this?

      The PayPal dollar is backed by the full faith and credit of PayPal, of course.

      It's the same with the Visa and MasterCard dollar. They've been printing their own currency for YEARS, and selling its convenience and availability. PayPal is doing the same. The difference is that most Credit Card companies I've ever dealt with guarantee the integrity of the currency much better. Reversing charges? Not too hard. Even waiving a late fee can be done if you've got a good reason. Part of this is probably due to the fact that if a customer gets too fed up with them, they have options other than settling their debt (like Bankruptcy or just accepting the black credit mark) and they realize that reputation is important to a currency. PayPal is great in its niche for convenience and availability; confidence is obviously sortof shaky.

  • I hope that they get past this rather suspiciously timed lawsuit [wired.com] on, of all things,patent infringements.

    [sigh]

    another dam buncha lawyers who think the world owes them a living.living. and then there the the state regulators getting into the act with their brilliance in trying to regulate the internet.

    pardon me, while I bang my head against this convenient stone wall to get rid of this head ache.

  • Caution! (Score:3, Informative)

    by Martin S. ( 98249 ) on Friday February 15, 2002 @09:44AM (#3013210) Journal

    Slashdotters need to think twice, thrice, ... and be very careful before investing in PayPal.

    PayPal have been repeatedly subject to systematic frauds. These frauds which look set to completely destroy any customer/consumer confidence and shareholder value.

    I'm a pretty active investor in high-risk high-tech stocks and I will not touch the PayPal IPO.

    Check-out this site in particular.

    http://www.paypalwarning.com/

    And this Google search on PayPal fraud reveals >20K hits.

    http://www.google.co.uk/search?hl=en&safe=active &q =Fraud+PayPal&btnG=Google+Search&meta=

    IMHO, Think once, think twice, think never.

    • Re:Caution! (Score:1, Interesting)

      by Anonymous Coward
      "And this Google search on PayPal fraud reveals >20K hits.

      http://www.google.co.uk/searchhl=en&safe=active& q =Fraud+PayPal&btnG=Google+Search&meta="

      Now don't get me wrong, Pay Pal may have some security issues, but that line above isn't really convincing... Try searching for "britney spears naked" and tell me how many hits you get. I'm pretty sure she's never been nekkid for the camera...

    • Re:Caution! (Score:2, Funny)

      by jredbird ( 551158 )
      Despite your well intentioned caution, I had been looking forward to a 'buy and dump' strategy all week. However, I was terribly (and happily) distracted by Valentine's Day activities with my wife...although not altogether unrewarding, I missed the IPO and didn't clear the $6.50 a share I would had I followed through on my own advice.

      Caution is well founded in the long term with respect to this particular company. Although, the fact that this company is utilized by a number of shady characters, which does give it the advantage of stability, they will be the target of litigation and regulation unlike most businesses. Being in such a position may well add to the cost of doing business beyond what they are able to recover from users.

      In the short term, however, I'm sure they will enjoy good profits. They are one of the very few business models out there capable of taking a little piece of illegal industries, and dipping into the huge underground economy supported by black markets around the world. Not a bad bet in my opinion.

  • The Interesting Results of a Quick Dig (Score:3, Interesting)

    by MadFarmAnimalz ( 460972 ) on Friday February 15, 2002 @09:51AM (#3013221) Homepage
    Nokia Ventures is in on paypal, as the article states. Nokia Ventures focuses portfolio priority on mobility and IP related businesses. BMC Software is a partner, along with Nokia and others, in Nokia Ventures. BMC deals with business solutions, that wonderful catch-all, but a look on their site [bmc.com] will tell you these people are very supply-chain oriented.

    This is of course jumping to many conclusions reeking more of wishful thinking than any sense of reality, but the potential for synergy here just tickles me silly...

    I'm picturing an entire order-shipping-billing cycle, along with the obligatory online supply chain management system, all operated from PDA's and/or cell phones...

    Any suit with a geek-streak such as me is no doubt drooling by now.

  • PayPal is Doomed (Score:4, Insightful)

    by zentec ( 204030 ) <zentec AT gmail DOT com> on Friday February 15, 2002 @10:26AM (#3013330)

    Any institution that accepts money for "deposit" is by law, subject to the regulations of a bank. Federal regulators haven't fully caught-on to what PayPal does.

    The IPO will make for their easy slaying in federal court.

    • Re:PayPal is Doomed (Score:1, Interesting)

      by Anonymous Coward
      Don't you have to have a license to start a bank? What about issuing your own currency (Paypal dollar)?

      When the banking system was first concieved banks issued their own bank notes until governments stepped in and created their own central bank with that sole responsibility.

      So surely what paypal does is illegal?
    • have you heard of credit unions, building societies, and insurance companies?

  • I can only use paypal for $940 more (Score:3, Interesting)

    by Sabalon ( 1684 ) on Friday February 15, 2002 @10:40AM (#3013378)
    After I spend $940 more on paypal (even though it's coming of a credit-card) I will no longer be able to use paypal, according to them, until I provide them a bank routing number.

    So, I buy something on Ebay, wanna pay with my CC, why the hell does this company need access to my bank account?

    Things like that, even though I've never had any trouble with paypal, set off all sorts of little red flags in my head!

    • Re:I can only use paypal for $940 more (Score:4, Informative)

      by JatTDB ( 29747 ) on Friday February 15, 2002 @11:37AM (#3013587)
      Mostly because it is a means of further verifying that you are who you say you are. Since they are not shipping you the products you purchase from Ebay, they have no way of doing even that most basic verification...checking that billing address and shipping address are the proper ones listed on the credit account.

      Credit card fraud is pretty damned rampant on the internet anyway, and there's tons of fraud (CC and otherwise) on Ebay. Combine all that into one big lump that PayPal has to deal with, and they have to take measures like that to protect themselves. Most major credit card issuing banks have really stepped up the penalties for sites that do not have sufficient anti-fraud measures in place.

      • Why should they care? Like you said, they are not shipping me any products. They are taking my money and giving it to someone else.

        I can understand the shipping/billing address thing. I do have to provide my billing address when I add a card, but there is nothing that forces the seller to ship it to that address.

        I'd rather they provide an alternate method for verifying identity.
        • It's simply one of the easiest and hardest to forge methods of verifying your identity, and it works out great for them (and the users) because it can all be handled electronically. Most other authentication methods would involve stuff that couldn't be handled automatically (say, a fax of your driver's license and a voided check or credit card statement)...they'd have to have significantly more staff to sort through all that crap, not to mention additional customer service staff to deal with problems and such with that.

          I'd rather them continue to not charge lots of fees than to offer other verification methods.

    • It's most likely to comply with anti money laundering regulations. Institutions are required to have evidence of their clients identity before performing any substantial transactions on their behalf. This is particularly true where cash/cash equivs are involved. Now you can argue whether PayPal are an "institution", but if I were them I wouldn't want to have attention drawn to myself by being labelled a supporter of drug dealers etc.

      So they don't need access to your bank account, but they know your bank have validated your identity, so it's like a web of trust thing.
  • ....maybe they can upgrade the phone system and hire more people that will actually answer and help you. Then they won't have to 'hide' the phone number on the website like one of their people quoted they did on purpose.
  • I worked very closely with senior management at PayPal, including their founder, for over a year. From a pure business perspective, PayPal has a lot going for them:

    • 1. They have an excellent group of talented people and an excellent corporate culture. Talented, bright people who are dedicated to their jobs...what else can you ask for. They have excellent management and have the ability to move fast and adapt to change quickly.

    • 2. They've found a business model that works. It seems that anyone making or taking a payment over the Internet these days has a PayPal account. Most importantly, however, if you take a look at their growth rate and their balance sheet, you will see that they are on track to start making some real money very quickly.

    I am a fan of their service and a fan of the people who work there, but it saddens me that they may be in a good amount of trouble in the times to come. As a number of people have pointed out, several states are threatening to shut them off for doing business as an unlicensed bank. This causes a number of problems for PayPal and they need to address them soon:

    • 1. The states are right: PayPal is doing business as an unlicensed bank. You may have noticed that PayPal is not protesting any of the allegations made by the states - that's because they know if it came down to a fight in court, they would lose. They are a bank...no question about it. In fact, they've already had to give in to a few states, as they actually ARE regulated in few (3, I think)

    • 2. "So why don't they just get licensed as a bank?", a number of people ask. There are a number of things that make this difficult. First, the license process must occur in each state - this takes a lot of time and money. Second, this may greatly change their internal cost structure, as there are a number of regulated practices that they would have to adhere to if they were considered a bank in all the states they did business in. PayPal's margins are low and their real money is made on volumes - a major change in their cost structure and, particularly, how they hold floating funds may be lethal to their business.

      3. The Internet has no boundaries: If PayPal is shutdown by even one state they are in major trouble. If Louisiana, for example, shuts them down, PayPal must ensure that they do not mediate payments between any parties that live or do business in Louisiana. PayPal currently identifies individual's location by verifying (via US Mail) the address associated with a credit card or bank account. This presents a number of problems: What if the billing address of my credit card is a Mississippi address, but I actually reside in Louisiana - how will PayPal know they are performing transactions on behalf of a Louisiana resident? What if the routing number relates to a bank branch in Mississippi, but I reside in Louisiana, where that bank also has a branch (making it possible for a Louisiana resident to do business in Louisiana with a Louisiana bank through PayPal)? This is just a Pandora's box waiting to be opened.

      4. The banking lobby is strong: And they don't like non-banks getting into their space. Worst of all, PayPal has proven that this business model will work. A number of "real banks" are salivating to take this space over.

    Continue to use PayPal...it's a great service (Yes, there are the stories at www.paypalwarning.com and such, but any service with 1mil+ customers will have some unhappy people). Be cautious, however, if you are thinking of investing in them.

    • Re:Good service, Great people - but trouble is com (Score:4, Insightful)

      by Lumpy ( 12016 ) on Friday February 15, 2002 @01:42PM (#3014194) Homepage
      banking is like lawyers. It's full of the most corrupt and evil people on the planet. Banks happily turn huge profits while at the same time happily throwing it's customers under the bus by raising fees, adding fees, dropping service and quality. Why? because they know thay can abuse you as a customer and you won't do squat. What are you gonna do? take your measley $10,000 elsewhere? they dont care.. They care about the guy with $500,000 or more in the bank... they dont get fees, are treated nicely and even recieve thank you notes in the mail.

      90% of a bank's customers are unwanted by the bank. They wish they could get laws passed that would allow them to refuse service to all but the very wealthy, and charge you a service fee for the privilidge of being paid by a wealthy person.

      The differnce between a bank and an illegal loan shark is that the bank has a building and a sign (maybe the leg breaking part, but then the banks just come and take everything you own and tattoo a giant L on your forhead). Other than that they are 100% identical... and unfortunately in the world there is no alternative to turn to.
    • As far as regulation goes, I'd be happy if I could be guaranteed the following:

      1) No amount of money in my account will ever be frozen for any reason other than suspicion of fraud

      2) No amount greater than an amount suspected of involvement in fraud will ever be frozen.

      3) Full details of fraud claims must be given within 48 hours of freezing

      4) Fraud cases must be thoroughly investigated and resolved inside 30 days, or all account assetts are returned and the case is turned over to the legal system.

      It'd also be nice if they were backed by the FDIC, but that's sortof impossible until they become an official bank.

      Other than that, tho', I can take the risk of knowing they might go away. I just want to know they can't arbitrarily freezy my money.

    • Big bank gets: an established customer base and a headsart over big banks.

      Paypal gets: not having to worry about the big messy process of becoming regulated as a bank.

      I'm sure people investing in paypal see this as a likely end to their investment.
  • Everybody seems to be reaming PayPal. I love it. I'm not a huge Ebay'er but I've bought some stuff recently and let me tell you if an guy on an auction says he won't take Paypal (or escrow for high value items) I won't buy from him. It is that simple. All my friends use it as well. We settle up dinner tabs, fantasy football fees, etc. I've never had a problem. Of course, I'm only beaming payment off my credit card, not trying to use Paypal as a bank. If you want to hold big bank balances at PayPal, that's not something I would recommend.

    As for being first, some would say slashdot owes much of its success to the same thing. Ebay is great. Paypal is great. Slashdot is great. I love them all.
  • Can I use PayPal to buy PayPal stock? Or is that just asking for trouble?

  • billpoint new promotion (Score:3, Insightful)

    by asv108 ( 141455 ) <asv@nOspam.ivoss.com> on Friday February 15, 2002 @11:43AM (#3013608) Homepage Journal
    One thing that is not going to help Paypal [paypal.com] is Billpoint's [billpoint.com] full purchase protection [billpoint.com] promotion which is prominently displayed [ebay.com] on every auction with billpoint. This will convince Joe Sixpack that paypal is some type of unprotected rogue service.

  • Actually they're already having problems... (Score:4, Informative)

    by linuxrunner ( 225041 ) on Friday February 15, 2002 @11:52AM (#3013638)
    Louisiana has declared PayPal to be a money transfer system (duh!) and that they require licensing from the state to do business in the state.
    Since they don't have such a license, they have to quit doing business in Louisiana. Other states are following....

    Full article here:

    Yahoo News Article [yahoo.com]

  • Well, there's EBAY, perhaps it's only legit use. And then there is online sex and gambling. And online laundering.

    At least that's where the actions at. Risky you say? Come on, now, anythingforabuck is the American way....

  • Perhaps (Score:3, Insightful)

    by mindstrm ( 20013 ) on Friday February 15, 2002 @12:08PM (#3013723)
    this is good? perhaps this will somehow allow the public to put paypal under closer scrutiny?

    I'm not one who's usually in favor of regulation.. and I'm not sure I think it's a good idea, even in paypal's case...
    but when you have one institution JUST moving money around.. they end up with the power to SERIOUSLY disrupt people's lives.

    A bank can't generally freeze your account without a court order. Why? it's YOUR MONEY, not theirs.

    Same thing should apply to paypal. This freezing of funds is rediculous. Paypal is not a credit card; if you want purchase protection, use a credit card.

    Paypal should do the right thing and simply allow funds to move.. after all, they take their cut.

  • oh boy, I have my doubts (Score:4, Insightful)

    by Dr. Awktagon ( 233360 ) on Friday February 15, 2002 @01:19PM (#3014080) Homepage

    I love PayPal. I use it regularly for buying and selling on eBay (sometimes several thousand dollars a month), for giving online donations, and for occasional general money-sending.

    I have never had any problems with them. Their customer service has replied with real answers most of the time, the web page has been inaccessible once or twice, but other than that has never had any big problems. I have a merchant-level account, with a low fee (lower than Billpoint's regular rate, for sure). I take my money out every time I receive it, or I use the very handy Debit card to buy something. And they even TELL you when they change their terms of service!!

    eBay's billpoint? Junk! They really missed the boat when they bought them. The PayPal model, where they hold your money, has many more possibilities, including the debit card, bill payment, and investing (X.com style). Of course there are more possibilities for fraud too, but from a features point of view, PayPal wins. Plus my biggest problem with Billpoint, I can't sign up my multiple eBay accounts and addresses, but with PayPal, there's no problem.

    But, being the jaded and cynical fellow I am, I know that happy feeling will disappear very soon.

    Now PayPal, which is essentially an UNREGULATED bank that deals in short-term loans from customers (essentially, I am loaning them my money for short periods of time), now they don't have an obligation to their customers, they have an obligation to their SHAREHOLDERS. I'm very afraid, and everyone else should be the same.

    I guarantee they will do one or more or all of the following: 1) abuse patents .. 2) hide and massage the fee structure (how about charging 1% to withdraw YOUR OWN money.. that would be a good start).. 3) change the terms of service WITHOUT notification (why slow things down like that?).. 4) piss of the credit card companies who will stop allowing them to use their credit cards and logos.. 5) piss off enough people so that the government steps in and over-regulates after several state lawsuits..

    Who, knows, maybe I'm overreacting, maybe, like eBay, they will stay good after their IPO. But of course eBay was profitable very quickly, maybe that kept the shareholders happy. PayPal is in a unique and tempting position, and can easily screw over MANY people for their quest to profitability.

    What do you folks think? Along with eBay, I consider PayPal one of the few actual "innovations" that the Commercial Internet(tm) has brought us.

  • I wish I worked at Herman Miller (Score:3, Funny)

    by viper21 ( 16860 ) <scott@NoSPaM.iqfoundry.com> on Friday February 15, 2002 @02:50PM (#3014503) Homepage
    I wonder how many truckloads of Aeron chairs are on their way out to Paypal?

    I wondre if Herman Miller TAKES PayPal? That's an interesting paradox. It's an instant 3% off their purchase ;-)

    -S
  • Perhaps they should actually go global, instead of just saying they are. Accepting VISA and MASTERCARD from outside of the USA would be a good start.

    Does anyone know of a real electronic payment solution that allows you to send money from any country with trustworthy banks to another?

  • according to this lovely chart [marketwatch.com]. Thats respectable, I suppose. Although if this company had IPO's 3 years ago they'd have been at $400 by now, and $1000 by tuesday :P
  • A friend of a friend registered the domain name "x.com" five or so years back, before domain names were thought to have much value, and during the week or so window when single-letter names became available and before they were all registered. I think he registered it because he was working on some project related to X11, or perhaps he just thought the domain name was cool.

    Anyway, a few years later, he was approached by a company that wanted the name (this was during the height of the domain name foolishness/craziness a few years ago). I remember hearing that he sold for some money and a percentage of the company.

    I remember thinking that he was dumb because he ought to have asked for more cash and less equity.

    Guess I was wrong in the end because his couple hundred thousand shares of what is now PayPal (originally x.com) are probably worth several million.

    In the same situation I probably would have asked for much more cash up front and much less equity, which would have been completely wrong. To the extent that anyone can riches buying and selling domain names, this guy "earned" it by making a smart choice when selling.

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