April 24, 2012, 1:54 PM

PayPal looks to broaden its reach

EBay says it has big plans for its payments arm this year.

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EBay Inc.’s shining star, PayPal, shone brightly in the first quarter and will only shine brighter in the coming year. At least, that’s what eBay is projecting. In eBay’s Q1 2012 conference call, the online payments arm of eBay was widely discussed as the company revealed its 2012 plans.

“2012 is all about piloting, testing and learning,” eBay CEO John Donahoe told analysts when describing his plans for PayPal during a conference call with analysts. “This is not a scaling year, it's about piloting, testing and learning.”

EBay says it sees enormous opportunity for PayPal online, offline, on mobile devices and in international markets this year. For the second consecutive quarter, more than half of PayPal's revenue came from outside the U.S., eBay says. This, Donahoe said, highlights PayPal's expanding global footprint as people around the world look for a safer, easier way to pay online in their own countries and across borders.

But much of eBay’s excitement surrounding PayPal lies in the new features and functions that PayPal will be testing this year. During the first quarter, PayPal launched its first major point-of-sale product at a Home Depot, enabling PayPal's customers to pay in Home Depot stores by swiping a PayPal card or entering a mobile telephone number and PIN. The program unlike the much-touted NFC or Near Field Communication technology, works with Home Depot’s existing point-of-sale hardware, meaning Home Depot didn’t have to spend a large amount of money to upgrade its terminals to accept PayPal payments. EBay expects the service to be available in 2,000 Home Depot stores by the end of the second quarter.

“We're now working with Home Depot to start a phase of marketing to consumers, which will come in the May-June time frame,” Donahoe said. He says Home Depot will market the program via in-store signs and that both eBay and Home Depot will send mailings to consumers to promote the program. EBay says it has signed up many other retailers that will begin implementing similar programs in their stores in the second half of the year, although it has not named them or said how many.

“We continue to be very excited about the off-line opportunity for PayPal,” Donahoe said.  “It expands PayPal's served market from a $500 million market to a $10 trillion market. And if we just capture 2% of the off-line retail, it's another PayPal. So we're treating this with the same kind of seriousness we did the merchant services business five years ago and frankly, using a little bit of a similar playbook.”

EBay also recently launched a new payment product for small businesses called PayPal Here that lets merchants take payments via their mobile phones. PayPal Here offers merchants an encrypted card reader for iPhones and mobile devices using Google Inc.’s Android operating system that accepts credit and debit cards, as well as PayPal and checks. More than 200,000 merchants have signed up to receive PayPal Here, eBay says, and it expects the service to be widely available in the second quarter. PayPal Here is currently available in the United States, Canada, Australia and Hong Kong.

“I think it's a very innovative product,” Donahoe said.  “It's a product that we can go global with. And our biggest problem is we're not sure we can manufacture enough devices in the next 60 days to meet up with the demand. But that's the kind of problem we want to have.”

The use of PayPal in mobile apps is also growing, eBay said. For example, retailer Cumberland Farms recently introduced an app known as SmartPay at 50 of its Boston-area convenience store locations. Consumers can use the smartphone app to start the gas pump and then pay for their gas using PayPal.

“PayPal mobile payments volume continues to be on fire,” Donahoe said. “Consumers are using their mobile devices to shop and to pay. And our applications are compelling, and I think we will certainly beat some of the goals we set out for the year on those two fronts.” EBay, which just last month promoted David Marcus, former vice president of mobile for PayPal, to president of PayPal,  says PayPal revenue for the quarter grew to $1.3 billion, and total payment volume increased to $33.9 billion, up 31% and 25% respectively.

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