PayPal Opens Up Payment Platform to Devs

eBay CEO John Donahoe speaks at Innovate 09
eBay CEO John Donahoe speaks at Innovate09
Photo: David Needle

SAN FRANCISCO — It’s not often you hear $70 billion referred to as “pocket change,” but that’s how online payments giant PayPal sees its business potential.

“We’ll do about $70 billion in transactions this year, but that’s just pocket change compared to the $30 trillion consumers spend globally,” said Osama Bedier, vice president of platforms at eBay-owned PayPal.

Here at the company’s inaugural Innovate09 developers conference, PayPal officially rolled out its PayPal X developer platform that it thinks will be the foundation for a new wave of online transaction options. Until now, PayPal X has been in private beta, but today at the developer event, the company rolled out new APIs, pricing and features.

A bevy of third-party developers, large and small, were on hand to show off apps they’ve already developed for PayPal X. More than 1,000 developers participated in the beta including big names like Microsoft, SAP and Sun Microsystems.

Taking particular note of the growth of mobile, PayPal also showed a mobile payment toolkit designed to let developers embed payments in their mobile applications. The first application, which the company demoed, is for the iPhone. Bedier did a live demonstration of adding a payment option to an iPhone app for ordering pizza.

Earlier this year, PayPal previewed its Adaptive Payments APIs. Today, the company announced expanded payment capabilities including automatic currency conversion and a “Pay Anyone” feature for banks designed to let their customers send money when logged into their bank accounts — without needing a PayPal account.

“No longer do we want to be the bottleneck of innovation,” said eBay’s (NASDAQ: EBAY) CEO John Donahoe. “We’re opening up to you.”

Donahoe added that he believes PayPal will eventually be bigger than auction giant eBay itself because the service covers payments worldwide and across different systems.

“We believe e-commerce and online payments are in the early days,” he said, noting that online payments currently represent only about 5 percent of all payments worldwide.

Donahoe said he believes consumer payment behavior will change more in the next three years than it has in the past ten. One example of accelerating change: eBay’s application on the iPhone generates $500 million of transactions, powered by PayPal.

“That’s on a device that’s two-and-a-half years old on an application that’s only a year old,” Donahoe said.

Heading off competition?

PayPal is firmly established as an online payments behemoth but has seen other big Web players like Google (with Google Checkout) and Facebook start to make payment moves, as well as established players like Amazon (NASDAQ: AMZN).

All that competition in the online payments market is a key reason why PayPal X may be so critical to the company.

“It’s theirs to lose, and that’s why they needed to open up the platform,” said Kempton Izuno, who heads a Web commerce start-up that’s currently in stealth mode.

Izuno was at Innovate09 this week checking out what PayPal has to offer. Although he hasn’t decided which payment platform his company will use, he said PayPal’s name recognition and scale gives it a big edge.

But even with potentially billions up for grabs — if all goes according to plan — PayPal said it hadn’t jumped into openness without doing its homework first.

For one thing, PayPal executives said they are well aware of security concerns in opening up their system to thousands of developers.

“Security is our business,” Bedier said during a press event. “That’s what we do and we do it really well.”

Scott Thompson, PayPal’s senior vice president and CTO, echoed those remarks. “We didn’t decide yesterday to open up our platform. There were several things we needed to be certain of to make sure we could succeed. One of those is the security model.”

“What you have to understand is that the credentials you give us when signing into PayPal are a very small piece of how we authenticate you,” he said.

PayPal also announced it would reduce the fee it charges for certain service transactions starting in the second quarter of 2010.

Pricing for developers building applications in markets PayPal said are traditionally served by cash and checks, such as rent, consulting businesses or payroll, are being reduced to $0.50 for service transactions funded by a bank account or PayPal account balance, with a three-day settlement period.

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