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Anne Lindner

Life After PayPa

10 July 2002

The news that PayPal will halt its online gaming payment business is not yet three days old, and already at least one other e-cash service has noticed a spike in I-gaming business.

Person-to-person auction site eBay announced Monday that it will acquire PayPal for $1.5 billion. According to a joint press release issued by both companies on Monday, the purchase will bring an end to online gamblers' ability to bet using PayPal accounts.

"We had a very, very big morning."

-John Lefebvre
NETeller Inc.

"In view of the uncertain regulatory environment surrounding online gaming, eBay plans to phase out PayPal's gaming business after the transaction closes," the statement read. "Gaming providers who use PayPal will have ample opportunity to find alternative payment solutions."

Since the announcement, however, the president of NETeller Inc., which is also an e-cash provider, said he has already seen increased interest from gaming companies that want to set up accounts with his company.

"We had a very, very big morning," John Lefebvre said. "I think once a company declares that it's no longer interested in people's business, people probably expect a lower level of commitment."

Lefebvre, who heads the Calgary-based company, said the group is fielding a heavy stream of calls from operators who want to make sure their NETeller accounts are up and running before PayPal phases out its gaming services.

"I think people in this industry don't want to be taken by surprise," he said. "Cash flow is three of the four legs under the horse, so it's very important to keep the cash flow going."

Other e-cash providers aren't going so far as to say their business has swelled thanks to PayPal's exit. Rory Olson, president and CEO of SureFire Commerce Inc., which offers the FirePay e-cash service, said he expects to see a positive effect on his business, but he doesn't know when.

"Certainly we're in the infancy of this thing," Olson said. "This thing hasn't even come out of the incubator yet. It would seem to stand to reason that there should be, at some point in time, some kind of benefit to FirePay, although I don't really know."

eBay will acquire PayPal by trading 0.39 of each eBay share for one share of PayPal. Based on the July 5 stock price for eBay, the sale will be worth approximately $1.5 million, though the companies also expect that the final price will include $18 million in acquisition costs.

About 60 percent of PayPal transactions take place on eBay's site. The remainder of PayPal users, the company said in the joint release, are "small merchants who constitute a potential new audience for eBay." Gaming providers are clearly not going to be part of that new audience.

"It would seem to stand to reason that there should be, at some point in time, some kind of benefit to FirePay, although I don't really know."

-Rory Olson
SureFire Commerce Inc.

Lefebvre said it is hard to pinpoint the number of online gaming transactions that involve e-cash services like PayPal, NETeller and FirePay. He said that from what he has culled from talking with I-gaming merchants, the figure probably rests somewhere between 10 and 20 percent of I-gaming transactions.

"But it's growing everyday, because there are more and more difficulties with credit cards and some forms of money processing," he said. "We're certainly not a monopoly in the marketplace, that's for sure."

From a British perspective, the situation is different. Mark Blandford, executive vice chairman of Sportingbet, said the percentage of bettors that use PayPal to fund wagers on his site is pretty small and that credit cards and bank wires are still the most popular options, even though 55 percent of Sportingbet users are from the United States.

"We probably have some fairly unique banking relationships, coming from the standpoint of being a British public company, with full financial transparency and so forth," he said.

Blandford said Sportingbet offered PayPal as a payment option only because everyone else was offering it. Sportingbet never incentivized the use of PayPal, he said. Because Internet gaming is regulated in the United Kingdom, as opposed to in the United States, where several bills have been proposed to ban the activity altogether, players can still use credit cards and bank wires when paying for services on U.K.-based sites.

Life After PayPa is republished from
Anne Lindner
Anne Lindner