PayPal becomes a bank to fight off Google
By Tom Stevenson
Last Updated: 1:45am BST 16/05/2007
Online payments company PayPal is to become a bank as part of a push to beef up its European operation and fend off fierce new competition.
The eBay-owned electronic payment system is fighting off a challenge from Google, which launched a rival system last month.
PayPal said it was moving its headquarters to Luxembourg, where it has been awarded a banking licence. This means it will no longer be authorised by the Financial Services Authority, which has overseen PayPal since it became an Electronic Money Issuer in 2004.
PayPal has 35m customers in Europe, including 15m in Britain, which is the region's biggest online shopper. More than half of Britain's population is now online and more than half of British internet users have a PayPal account.
PayPal allows users to pay for goods and services online, without having to key in their card details for each purchase. The service also hides account details from retailers, for extra security.
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Brent Bellm, head of PayPal's European operation, said the changes would allow the company to increase the number of online retailers offering the service. According to Forrester Research, 23pc of European internet shoppers prefer to pay with PayPal. More than 100,000 retailers offer PayPal but most are small. Only a handful of big retailers such as Boots and Harrods are signed up to PayPal.
Although Google is a threat to PayPal, the eBay subsidiary has continued to grow since the search engine launched its Checkout service last year in America. PayPal has more than 130m users worldwide.
Last month, eBay said a 27pc rise in first-quarter revenues to $1.77bn was boosted by a 51pc jump in payments through PayPal. The online auction house accounted for around 60pc of PayPal revenues but the other 40pc was growing faster, Mr Bellm said.
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San José, California, together with several other eBay divisions.

The online payment service PayPal has received a banking licence in Luxembourg, promoting it to the status of a bank. As a consequence PayPal will move their headquarters to Luxembourg.

Since 2004 PayPal had the status of an Electronic Money Issuer supervised by the U.K. Financial Services Authority. Having an official bank status opens new prospects for the company: "This will allow us to actively scout retailers in different European countries. With our British licence, we could only do that in the U.K. itself, and in other countries we could only react to requests of the retailers themselves," Christopher Coonen, General Manager of PayPal Southern Europe and Benelux, explained.

The change will not affect existing customers dramatically, says Coonen: "We are going to inform them of the new status, and they will have to accept our terms of service again." He also said that for now, there were no plans to use the new licence to offer traditional banking services, but the possibility was being evaluated by PayPal. Working with local partners would be an option to accomplish this, according to Coonen.

The British newspaper ''The Daily Telegraph'' speculates that the move is part of a strategy to compete with Google's payment service Google Checkout, which launched in the U.K. last month.

PayPal has 130 million users worldwide, and 35 million customers in Europe. Payments via its mother company eBay continue to make up 60% of PayPal's revenues. More than half of Britain's internet users have a PayPal account.