Grandma Now Accepts Credit Cards

Person-to-person payment promises to speed service at online auctions.

Megan Barnett, The Industry Standard

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X.com, an online financial services start-up offering banking products and person-to-person payments, has merged with PayPal, which offers a competing service. The merger is expected to be announced Thursday, one day after Wells Fargo said it has teamed up with EBay to create Billpoint, a new company that offers the auction site's 10 million users a handy way to accept credit card payments.

Payment systems have not kept up with the booming world of online auction sites like EBay and Yahoo Auctions, which have taken the garage sale to a universal scale. People can't pay with cash online, and individuals can't take credit cards, so the billions of deals on these sites have been closed using "snail mail" and paper checks or money orders.

With PayPal, X.com, and Billpoint, the anonymous seller in Kansas selling an antique lampshade to the buyer in Oregon is able to seal the deal instantly by accepting an electronic payment.

"Both PayPal and X are far and away the market leaders," says PayPal Chief Executive Officer Peter Thiel, who will become the senior vice president of strategy and business development for X.com. "It makes sense for us to join."

Wednesday's announcement of Wells Fargo's alliance with EBay helped speed up the deal between the two upstarts. PayPal is the leading payment system on EBay today; a search Wednesday revealed nearly 300,000 items were for sale using the PayPal system. A similar search for Billpoint, which had been in a pilot test for ten months, revealed that only 3780 items were using that service.

Let the Battle Begin

But with Wednesday's official launch and the announcement of Wells Fargo's involvement, Billpoint will likely begin its domination as the preferred payment on EBay.

"The actual activity these systems have seen is still very small compared with the potential," says Wells Fargo's chief executive officer, Dick Kovacevich. "With our branding in both the Net and the physical world, it should reduce the anxiety consumers have about whether this is secure. People want to know it's safe and secure and if there's a problem, someone can help them."

X.com executives say the consumers will drive the success of the payment systems, and they contend that the simplicity of PayPal's system will help X.com prevail. "It will be driven by the buyers and sellers as opposed to what EBay wants to happen," adds X.com founder Elon Musk.

And EBay is not the only distribution channel for person-to-person payments. Communities where people give to charities or pay club dues or subscription fees are another target area for X.com. Both X.com and Billpoint have announced plans to extend into the business-to-consumer space.

"This really signifies that people are coming around to seeing the potential of this market," says PayPal's Thiel. "This is going to be a huge market."

For more in-depth coverage of the Internet Economy, visit The Industry Standard.

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