PayPal is an e-commerce business that allows payments and money transfer to be made through the Internet. PayPal serves as an electronic alternative to traditional paper methods such as cheque and money orders. The service allows members to send money without sharing financial information, with the flexibility to pay using their account balances, bank accounts, credit cards or promotional financing. PayPal is an example of a payment intermediary service that facilitates worldwide e-commerce. PayPal is an eBay subsidiary company and is made up of three leading online payment services: the PayPal global payment service, the Payflow Gateway and Bill Me Later. The company’s open payment platform, PayPal X, that allows developers to build innovative payment applications on multiple platforms and devices.
PayPal performs payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It charges transaction fee for receiving money. The fees charged depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient’s account type. In addition, PayPal is also the preferred way to send secure payments on eBay. With PayPal, customers who have an online account can makes it easy to send money from a variety of sources to a variety of recipients without sharing his or her financial information. Besides that, the recipient never sees their credit card number or their banking information.
So, as a buyer, customers can pay for their item online through PayPal. They have the choice of funding their payment with their debit card, credit card, bank account or PayPal balance. Sellers are notified by email of their PayPal payment immediately, and can confidently post the goods to them right away. As a seller, he or she can withdraw those funds to their bank account or use them to send a payment to someone else. If for any reason a refund is required, a seller can quickly and easily send a refund to the buyer directly into their PayPal account.
PayPal is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December 1998 by Max Levchin, Peter Thiel, and Luke Nosek, and Ken Howery, initially as a Palm Pilot payments and cryptography company. Both Confinity and X.com launched their websites in late 1999. X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. Confinity’s website was initially focused on reconciling beamed payments from Palm Pilots with email payments as a feature and X.com’s website primarily featured financial services with email payments as a feature.
In October 2002, PayPal was acquired by eBay. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint, eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. Currently, PayPal operates in 190 markets, and it manages over 223 million accounts, more than 73 million of them active. PayPal allows customers to send, receive, and hold funds in 19 currencies worldwide. These currencies are the Australian dollar, Brazilian real, Canadian dollar, Euro, pound sterling, Japanese yen, and others. PayPal operates locally 13 countries, residents in 194 markets can use PayPal in their local markets to send money online.
SWOT Analysis of PayPal
SWOT analysis is an effective tool which aids strategic planning both for individual as well as organizational growth and development. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT analysis model is composed of these four main elements put together which form a framework for analysis. Strengths and weaknesses are the internal factors that influence the individual or organizational objectives. They are internal to the individual or organization and are within their control. They are classified as strengths or weaknesses depending upon the impact that they have on the objective. The attribute that may be seen as strength in the context of one particular objective may prove to be a weakness in a different decision-making context. For example, aggressiveness is normally considered a weakness in an individual’s personality. But when we consider it in the context of soldiers who are trained for combat, aggression is regarded as their strength. On the other hand, opportunities and threats are the external factors that propel the individual or organization towards growth or impede its progress respectively. They are external to the individual or organization and are beyond their control. Thus, the main object of SWOT analysis is to recognize the major internal and external factors that are crucial to achieving the desired personal or business objective
The strengths of a business are positive elements, something they do well and are under their control. The following we will see the main strengths of the PayPal. The first strength we will talk about is the business alliance of PayPal. Because of social website that has users from all over the world- Facebook has brings the PayPal to manage its payment make PayPal increase more revenue. Facebook find out that 70 percent of its 400 million users live outside the United States, so it can be hard for them to transfer money to the company online. While PayPal has more than 81 million active accounts, it can help Facebook to collect money easily. Having alliances with other strong and popular IT businesses is a major plus point for PayPal as it helps bring in new customers and make business more effective.
PayPal appear as the only online global payment system in the world. It is a key to success for PayPal to work hard for it boosts reputation, profit and market share. PayPal has an impressive growth from year to year. It has around 70 million active users in 2008 and it is 23% more than 2007. PayPal operates in 190 markets, 17 local languages, and transacts in 19 currencies and it operates with 27 global financial networks and 15,000 local banks around the world. No other companies have this advanced system except the market leader- PayPal. It has a high percentage of the market share, meaning it is ahead of many competitors.
Competitive pricing is a vital element of PayPal’s overall success. With the cost effective payment system online such as the ‘Pay as you go’ system that allow customers pay only if they are making money online unless they are using more advanced options. Such pricing keep PayPal above its rivals. PayPal need you just simply pay a percentage of the payments received, typically between 1.4 and 3.4% plus a fixed amount of 20p per transaction. And it is totally free to set-up a PayPal account for your business with no hidden start-up costs or yearly subscription fees.
It is often the case that a potential customer may not heard of your business, but they certainly have seen or heard of PayPal before. PayPal logo can be easily seen by the users of internet because it appears in almost every auction website and even in many website that provide services as the payment method. They are therefore more likely to consider purchasing from your website as they some more do not have to give their financial details if use PayPal. A strong brand is an essential strength of PayPal as it is recognized and respected. Now the system has 100 million satisfied users worldwide and more websites use PayPal than any other payment gateway.
The other strength of PayPal is convenience it brings to the public. PayPal website and payment service is user friendly. It is easy and simple to use, even for those who have no or little experience in selling or buying online. PayPal main focus is on the ease of use for both receivers and senders of cash. It also uses its securing system to help protects consumer’s personal information, and provides payments to merchants without ever providing your personal financial information. Merchants will not get the credit card information of the consumers, it decreasing the chance of breaching personal information. The ability to accept online payments typically only afforded to larger businesses with traditional credit card services but with the appeal of PayPal, it offers merchants, specifically smaller businesses can afford online payments. In essence, PayPal provide a per-to-peer payment channel by acts as a mediator between consumers and merchants.
The first weakness of PayPal is the weak system of it. Currently, PayPal is not using a database-driven ordering system. For most of the online merchants with 25 to 500,000 products for sale online set up a spreadsheet or database that contains their product information by using specialized software. They make changes to the database on a desktop computer, such as price increases, inventory on hand, adding or deleting a product, altering color choices, initiating special sales, etc. These changes then will replace the older product database and show up the new product database on the website. But the PayPal system stores the order buttons of customers in an online database of sorts, but customers can only access it by using the web interface. It works quite smooth if customers only making one or two changes. But if customers have a lot of products, they forced to make the changes constantly. It will cause customers waste too much time while the time is most conscious for business.
The other weakness is the bad communication between PayPal and its customer. The complaining system and the customer service at the PayPal website are too ineffective. Many complaints from time to time claim that PayPal has shut down a customer’s account arbitrarily and won’t listen to any reason. But it’s not hard to know that PayPal works very hard to keep its system secure and fraud-free. When it finds out customers doing things that skid along the edge of its policies, it may shut them down arbitrarily. As PayPal is act in such way for good reasons, it should try to communicate with customers and let them know more about their action like send e-mail or phone call them so the misunderstand can be decrease.
The limited flexibility of the PayPal system is due to its inflexible Hosted Ordering Interface. It provides an inflexible ordering interface that can be confusing to shoppers. PayPal allow customers to customize the interface a bit by adding their logo, selecting background colors, and border styles but customers’ ability to customize the order page is only in cosmetic ways. PayPal does not have an ordering system with open code that a programmer can manipulate to suit customers particular e-commerce needs. Some of the strongest conversion rate gains can be made by testing and streamlining an order interface in this way. That’s the reason why the PayPal’s order interface is clunky and can be confusing.
Acquisition is one of the opportunities for PayPal as it can bring more customers to PayPal especially with company that also run IT business. eBay announce that it will phase out its own competing service to PayPal that is eBay Payments by Billpoint and has acquire online payments company PayPal in a deal valued at $1.5 billion. This is very beneficial to PayPal as bulk of its business comes from eBay auctions. This event sure will result in improving PayPal’s profit, market share and reputation.
Innovation of new technology can be defined as an opportunity to the PayPal. PayPal has reached an agreement with USAA Federal Savings Bank (USAA Bank) that will allow it to start developing a person to person payment solution for USAA members. This payment solution is something that USAA Bank plans to deliver in 2011. In future, USAA’s members will be able to pay almost anyone with an e-mail address or mobile phone number, in real-time, and directly from their mobile phone. By keep working hard to provide more innovative product to the public, PayPal can gain more and more potential customer. Another example we can see is by releasing new APIs (Application Programming Interfaces), PayPal is challenging the developer community to change the way we pay through innovation and new technologies. As the only open global payment platform, PayPal is unlocking the door to an unparalleled business proposition to developers that is create new, innovative ways to pay and get paid. And, the global payments market represents a $30 trillion opportunity according to a recent McKinsey report.
Furthermore, the efforts of PayPal on product and services expansion have upgraded its own mainframe system to every corner of the world. To show its efforts in product and services expansion, PayPal has expanded its micropayments pricing, available to any member with a PayPal Business or Premier account. Micropayments fees for US dollar transactions are 5% + 5 cents per transaction. When compared to PayPal’s standard fees (2.9% + 30 cents), the micropayments rate can save money for merchants whose average selling price is below $12. Although micropayments is not new to PayPal, but this micropayments pricing was previously available only to account holders in select countries. With this expansion, PayPal are making it available to any PayPal Business or Premier account holder worldwide using any of PayPal’s 19 supported currencies. In addition, this micropayments pricing can be used with any of PayPal’s payment products including Website Payments Standard, Website Payments Pro and for eBay sellers.
The massive power of the Web can be recognized in its global effect on commerce. A global commerce for business exchange known as PayPal has been required because this medium is so strong worldwide. PayPal is recognized as an actual commerce with value around the world, and it makes someone in Europe can purchase a product from the United States while the neither party without PayPal has to struggle with the transfer of money options or exchange rates. The creation of a global commerce exchange system at a local consumer level makes this result happen.
The actions of a competitor could be a major threat against PayPal, for instance, if they bring in new technology or increase their workforce to meet demand. PayPal has several competitors such as eMoney Mail, Ecount and payMe. eMoney Mail provide delivers payments faster than the competition and its additional security ensures money doesn’t end up in the wrong hands. Ecount lets customers specify the day they want money to arrive and provides payees with an online account to spend money on the Web, and it provide 24/7 toll-free customer support too. payMe deposits money in credit card and checking the accounts and it do not limit to the amount you can send overall. Both of the competitors try to give their best services, if PayPal do not work hard and efficient enough, it will lose its market share and reputation.
Price wars between competitors that occur due to competitor keep invent new technology could damage profits for PayPal. As in year 2006, Google plans to use Checkout, a service released in June that lets users buy items from multiple stores using a single account. Its purpose is to generate commissions and encourage more merchants to buy advertisements. At that time, the PayPal payment unit was EBay’s fastest-growing business in the third quarter. PayPal’s revenue climbed 41% to $350 million, outpacing a gain of 22% in auction revenue to $1.02 billion. Google Checkout wants to attract customers and therefore make charges a 2% commission and a 20-cent fee per purchase. While PayPal, which EBay acquired in 2002, charges a 30-cent rate, plus transaction fees of 1.9% to 2.9%, depending on the total value of payments processed each month. But in EBay’s promotion announced, customers receive as much as $20 in cash-back rebates from PayPal when they make online purchases on EBay.com and certain merchant websites in North America. As we all can see, price wars will cut off the profit of the company.
PayPal do not invest in the advertising on the internet causes the brand image of PayPal is not very well. So it also has a need to strengthen its brand through the Web. In the image of the public, PayPal’s brand is closely associated with smaller merchants, low-cost auctions, and P2P money transfer. As a result, some larger firms might not want their brands associated with PayPal brand image. They may think that by this way public could devalue a corporation’s stronger brand. The fact remains that consumers associate its brand with less expensive, cheaper items even though PayPal is an enormous corporation. In order to solve this problem, PayPal should look to network with larger companies through the possible branding of a service associated with corporations. Furthermore, PayPal has the ability to introduce and market a new brand, such as CorpXchange or CorpCash by promoting the same services but without the “low-cost auctions” associated with PayPal.