March 14, 2002, 12:00 AM

PayPal could be the next big thing in online payments, Gartner says

To boost acceptance among e-retailers, PayPal has launched an online resource targeting web developers with tips on implementing the system into site design.

When it reaches critical mass, PayPal’s fast-growing customer base could be big enough to force large e-retailers to accept PayPal as an alternative to credit card payments, researchers Gartner Inc. predicts.

A Gartner survey found that 33% of online consumers consider PayPal a trusted source of payment services, a higher confidence rating than was accorded credit card alternatives. 27% of those surveyed used PayPal, which is 2.5 times more than its nearest competitor, Billpoint. PayPal’s other competitors trail far behind in usage, with only 1% using C2IT, owned by Citibank, and 3% using Yahoo!PayDirect.

Nearly 80% of consumers surveyed were aware of p2p (person to person) payment services for sending money to other individuals. But the survey showed that consumers are increasingly interested in using the service as an alternative to credit card payments for person-to-business transactions, such as with e-retailers.

Existing brand awareness and market position make PayPal the company most likely to establish an e-cash standard for Internet purchases especially for less-expensive items, say Gartner analysts. PayPal’s user base, currently about 13 million, is growing by about 20,000 per day, according to Gartner. The system has already gained widespread acceptance in the auction market, with approximately 70% of eBay sellers now accepting PayPal. And acceptance of PayPal by non-auction sites including smaller retailers has been growing rapidly since the middle of last year, says a PayPal spokeswoman.

Security and privacy concerns are a key driver of that growth, she says. “There is still a large portion of the Internet community that doesn’t feel comfortable giving credit card information online to merchants they don’t know,” she says. “With PayPal, they can make a payment but the merchant doesn’t see that information.”

To drive greater acceptance of PayPal among e-retailers in the future, PayPal has just launched the PayPal Developer Network, accessible through a tab on its web site. It’s an online resource that targets web developers who are creating sites for merchants with tips on how to incorporate PayPal into site design, as well as links to useful third party tools.

Major e-retailers will need a big incentive to take on another payment system, and Gartner says that a PayPal customer base of 25 million – about double the current user base -- could be enough to provide it. “Once the network is large enough, we think it will be much more appealing to large e-retailers,” says the spokeswoman.


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