PayPal Looks To Evolve Beyond Its Auction Roots

Beyond eBay, PayPal already added various features for other merchants, including donation boxes that blogs and other Web sites can add to their pages inviting readers to make donations.

"PayPal provides a fantastic way for small webmasters to be able to collect money,'' said Ina Steiner, editor of the AuctionBytes newsletters. One PayPal user is Los Angeles-based RotoWire.com, a fantasy sports service that sells online subscriptions to several thousand customers. Chief Operating Officer Tim Schuler said RotoWire accepts credit cards by phone and has its own merchant bank account, but for security reasons prefers customers to pay online via PayPal.

Customers who already have PayPal accounts can pay with a few clicks, while those who don't can register or simply enter their credit card number via a form PayPal presents when they go to pay. Either way, no credit card numbers or PayPal passwords are stored on RotoWire's computers.

"No one at my company could get access to those credit card numbers'' " Schuler said. "It is a huge relief to be able to tell customers, 'Your information is secure.' "

While PayPal has its share of problems with fraud and is a huge target for phishers -- crooks who send fake e-mails enticing people to reveal their personal data -- security has turned out to be one of its selling points. Buyers like not having to reveal their credit card numbers to unfamiliar sellers; some also enjoy the convenience of not having to reenter credit card numbers at different Web sites.

Of the available funding options, PayPal by default presents bank transfers to users who have given them their banking information, because those cost PayPal the least. Credit cards carry higher processing fees and currently account for a little more than half of PayPal's transactions.

But analysts worry that in the future, PayPal won't be able to persuade as many buyers to pay via bank transfers or their PayPal balances.

"If PayPal wants to move to the larger marketplace, some of their traditional pricing advantage will probably erode," predicted Robert J. Coolbrith, director of research for the Financial DNA consulting firm.

Dana Stalder, a PayPal vice president, doesn't believe that will happen. He said PayPal will encourage large merchants to continue accepting credit cards directly online. That payment option typically is placed alongside the PayPal button on Web sites of established merchants. "Roughly 9 percent of all U.S. ecommerce last year was through PayPal," Stalder said. "We think we can increase that share over time."

While many will doubt PayPal, so far it hasn't paid to bet against this e-mail money machine.

Leslie Walker's e-mail address iswalkerl@washpost.com.