Private investment firm Comvest Partners acquires the financially troubled e-retailer, which filed for Chapter 11 bankruptcy protection in March.
PayPal is expanding beyond eBay with a pitch to retailers.
Three years ago, Tiger Direct, a $380 million-a-year electronics retailer, decided to test accepting PayPal for online sales in addition to the MasterCard and Visa cards that it accepted already. Management`s rationale was that PayPal represented consumers who were shopping on eBay and accepting PayPal would be a good way to attract new shoppers. At that time, there were no other retailers of its size that it could check against, so the company was taking a calculated risk that PayPal would do what the company hoped it would.
Today, PayPal accounts for 5% of Tiger Direct`s sales and management`s initial strategy is paying off: 87% of PayPal users are new to Tiger Direct. On top of that, their average ticket is $10--10%--higher than other customers` averages. "We never anticipated that PayPal would be big, but we`ve been happy with our experience with it," says Lonny Paul, director of electronic commerce for Tiger Direct, based in Miami.
A deliberate strategy
While still the largest of PayPal`s merchant customers, Tiger Direct is not as alone as it was three years ago. And if PayPal succeeds in its new merchant strategy, it will have many more merchants the size of Tiger Direct.
Founded as an independent company to provide payment services to buyers and sellers on eBay.com, PayPal this year has completed the technological work it needed to do to become a payments provider for online retailers and is now ramping up a direct sales force to call on merchants. "About 18 months ago, we decided to become much more deliberate and strategic in moving off of eBay," says Todd Pearson, general manager of merchant services.
Among the major recent initiatives it has completed has been development of application programming interfaces that allow merchants to integrate PayPal into their order management systems. "At this time next year, people will be thinking of us differently," Pearson says.
Retailers need PayPal integrated into their order management systems so they can, for instance, easily reverse a transaction and make the necessary inventory and customer data changes without having to go into one database to reverse the PayPal portion of the transaction, then into another database to update inventory status and customer records. "Everything needs to be API," Pearson says.
A new sales force
Once that coding was complete, PayPal developed a merchant sales force made up of one team to sell to larger merchants and another to sell to smaller merchants who have a shorter sales cycle and thus can implement faster and get transactions running through PayPal sooner.
In addition to Tiger Direct, Overstock.com has been accepting PayPal for some time and the company recently signed NewEgg.com and B&H; Photo, both of which launched with PayPal`s API services. Pearson says PayPal is in serious talks with 60-70 other merchants. And the company expects that agreements with payments processors Cybersource Corp., which recently completed its PayPal API development, and Retail Decisions, whose customers include Walmart.com, Buy.com, Netflix.com and Travelocity.com, will give further exposure to its merchant program.
PayPal, which was acquired by eBay two years ago, works like this: Consumers establish PayPal accounts and then fund them with payments from their credit cards or transfers from their bank accounts. It was attractive to small eBay sellers because most could not obtain credit card merchant status on their own or would have to pay discount rates that many believed were unaffordable. From its modest beginnings, PayPal now claims 50 million accounts with $1.5 billion a month flowing through its system.
Now, as it moves into the broader merchant market, PayPal is hoping to leverage its experience as a payment service for individuals and small retailers who sell on eBay. It is rolling out a product aimed at small and mid-sized businesses that includes a shopping cart function as well as the payment option. While still in the early stages, the service has been well received, says Stephanie Tilenius, PayPal senior vice president.
Shopping cart development
In fact, it was that aspect of PayPal that was one of the most attractive features to Bluejeancable.com, a small retailer of audio and video cables for businesses and individuals, says owner Kurt Denke. "One of the issues that a small retailer faces is IT--the basic question of how do I get a shopping cart up and running," Denke says. "With PayPal, we didn`t have to deal with the shopping cart issue at all."
The components of PayPal`s new APIS are:
n TransactionSearch: Based on specified search criteria such as payment date or customer name, this service returns a set of matching transaction IDs and basic transaction details.
n GetTransactionDetails: For a given transaction, this application returns all details associated with the transaction, such as customer e-mail address, time of payment, and purchase details.
n RefundTransaction: This application reverses a transaction and issues a refund to the purchaser.
n MassPay: This application transfers funds to recipients by providing an automated alternative to paper checks or manually initiating individual payments.
PayPal also is highlighting discount rates that are lower than credit card discount rates. Merchants with $100,000 a month in PayPal volume pay a 1.9% discount fee and 30 cents a transaction, Pearson says. Larger merchants can negotiate pricing, he says. "As a new merchant we were quoted terrible discount rates, 4% and higher," Denke says. "At PayPal, we are paying 2.5% plus 35 cents a transaction and that can go down as we build volume."
PayPal is further expanding its services by becoming a credit issuer in a deal with GE Consumer Finance. It is offering a line of credit for consumers to use at any site that accepts PayPal. Users of PayPal Buyer Credit will receive full Buyer Protection from PayPal if their items are significantly different from how they are described on eBay or if their items never arrive. Sellers get paid in full by PayPal immediately upon close of the transaction and take no credit risk.
PayPal Buyer Credit also allows eBay sellers to offer buyers a deferred interest option for three, six or 12 months on purchases over $199. Sellers who offer deferred interest pay a fee in addition to the discount rate: 0.5% for three months deferral; 1.75% for six months; and 3.75% for 12 months.