EBIZ- mini Research Assignment- PAYPAL

Group Members:

Leader:            Teo Wei Shan (SIM ID: 10146895) 

Secretary:        Alicia Lim Wan Lin (SIM ID: 10148273  )

Email:              teoweishan@outlook.com, alicia-lim@live.com

Class-code:      L42 – 2014

Submitted on:  07/10/2014

PayPal Business model:

Background: Paypal adopts a “broker” retail model, where they are the market-makers who bring buyers and sellers together and facilitate transaction. Market-makers do not take ownership of the goods or services, but play an intermediary role in B2B (business-to-business), B2C (business-to-consumer), and C2C (consumer-to-consumer) markets. PayPal charge a transaction-based fee to the seller at 3.9% + $0.50 SGD per transaction, or lower.

1.   Business Value Proposition: PayPal offers two related value propositions, for both sellers and buyers.
The seller’s primary value propositions include the several factors:

• Convenience: Sellers need not install or use a specific payment processing gateway. With just a simple cut-and-paste of PayPal payment triggers and embedded them into HTML, the process will be completed. Unlike traditional merchant accounts, PayPal’s signup process is quick and painless, and can be done directly online within 2 minutes. No significant time is needed to sign up with PayPal or to learn and administer a PayPal account.
• Low-cost: Ongoing transaction fees are low as compared to those of traditional credit-card processors.
• Security: With all payment processing pushed out to PayPal, sellers need not maintain a credit-card database, hold online records, or take extraordinary steps to protect consumer financial information from hackers. They do not even need to authenticate the buyer, since that is handled by PayPal.

    Buyer’s primary value proposition follows:

• Convenience: Using just a Web browser, buyers can make a payment to any of two million small businesses and eight million other individuals. Signup is entirely online and takes only seconds.
• Flexibility: Buyers have the flexibility to make payments from a PayPal account balance, from a banking account, or with a credit card.
• Security: Buyers need not reveal financial information to sellers, nor worry about the ongoing exposure that might allow sellers to mismanage, misuse, or leak credit-card information. Buyers are also not required to reveal social security number when opening an account. Unlike paying directly with credit card, PayPal also does not require sharing sensitive information, only email and password.

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2.   Revenue Model: Revenue from transaction fee between buyer and seller, as a middleman. By providing the bank account or credit card information of both sides to PayPal, PayPal in turn will handle all the transactions with various banks and credit card companies, and pays the interchange. PayPal earn its revenue through the fees they charge to seller per transaction and also collects interest on money left in PayPal accounts. All the money held in PayPal accounts is placed into one or more interest-earning bank accounts. An account holder does not receive any of the interest gained on the money while it sits in a PayPal account. <<< good

3.   Market Opportunity: Global aviation of 203 countries and in 26 currencies, PayPal could explore into the non-retail segment, which includes rent, attorney fees, contractor payments, and tax preparation fees. As such, PayPal is able to differentiate itself from its competitors and expand its market segmentation and customer base.

      Consider this:

Paypal is largely used by USA firms now, and big markets like India & China present huge potential opportunities.

4.  Competitive Environment: The major competitors include: Visa Inc., MasterCard and American Express. Under external environment, there are a lot of regulatory requirements, associations, and the importance of compliance for a financial institution. Hence, threat of new entrants is relatively low. In terms of competition, PayPal compete with everybody, and it is much of a more openly competitive environment.

5.   Competitive advantage: PayPal is the largest and most popular in the online payment systems that is currently holding more than 100 million active accounts in 26 currencies. PayPal provides a secure wallet system of transferring funds for both senders and receivers. In addition, PayPal has launched a point of sales solution-PayPal Here which serves as a replacement for cash registers. Local preferences were looked into, when designing the PayPal Here devices for the individual markets. For example in Europe, most credit and debit cards use a chip-and-pin type of authentication, which is more complex than the swipe-based cards that U.S. shoppers use. PayPal are also looking towards creating experiences that are even more optimized for mobile sites by embracing adaptive design so as to deliver their sites on mobile up to 40 percent faster.   <<good, but consider this point - Paypal’s  parent company EBay has huge followers. This gives PayPal a natural advantage over its competitors.

6.   Marketing strategy: PayPal adopted the “Viral Marketing” strategy. When a user sends money via e-mail to a non-registered friend or family member, that person must open his or her own PayPal account in order to receive the funds. Various small merchants, such as online shopping, is now accepting or only accepts PayPal payments on their Web sites as their accepted form of payment. Buyers therefore have to create a PayPal account to make their payments and thus, driving more new buyers to use PayPal.

7.  Organisational development: PayPal is always at the centre of the next payments innovation, including both mobile and in-store payments. Be it online shopping via a mobile device or in a physical retail store, PayPal wants the end-consumer to opt for them. PayPal also ensures that consumers can make payments without having to rely on cash or plastic cards while mobile themselves, while proving their ability that they create a differentiated and frictionless payment experience across all channels, all devices and all methods of payments. Payments space today is also changing fast and for all the emerging payments options on the market today, PayPal definitely has a product to compete.

8.  Key management team: PayPal team (Peter Andreas, Patrick Dupuishave, Ryan D. Downs) have great and variety of experiences in managing products, sales, innovation and technology such as online payments both locally and globally with companies such as American Express.

Conclusion: Overall, PayPal’s success in the online payment industry is a result of its ability to effectively able to differentiate itself from its competitors by offering strong value propositions to both buyers and sellers, constantly innovating and let simplicity be the key competitive edge, and adopting highly sophisticated transactional ‘Risk & Fraud Models’ which helps to keep costs down by minimizing fraud and keeping the platform secure.