By acquiring its main rival in the consumer online credit market, eBay Inc. would become a more significant player in a niche it has been pursuing since last year with little success.
The San Jose company said Monday that it would incorporate Bill Me Later Inc. into its PayPal Inc., and that it eventually plans to shutter Pay Later, a service comparable to Bill Me Later's but much less successful.
The strategy mirrors eBay's 2002 decision to buy PayPal and close its own person-to-person payment service.
Bill Me Later "is a better product than what we have as Pay Later," Scott Thompson, PayPal's president, said in an interview Monday. "So while we have some uptake, it's just not to the same level as Bill Me Later has achieved in the market."
This was the same logic eBay used in the PayPal acquisition, he said. At that time eBay was pushing its Billpoint payment service "as a competitive service to PayPal," but Meg Whitman, eBay's chief executive at the time, decided to purchase PayPal. "It was a fundamentally better product and a better service at the time. In a lot of ways, we look at this acquisition and Pay Later in the same light."
On Monday eBay said it would buy Bill Me Later for about $820 million in cash plus $125 million of outstanding options. Gary Marino, the Timonium, Md., company's CEO, would continue to run the business.
Bill Me Later has relationships with several major online merchants — a market where PayPal has been trying to expand. eBay's payment service is offered by many small merchants — a market Bill Me Later has lacked the resources to tackle, according to Bruce Cundiff, a director of payments research and consulting for Javelin Strategy and Research of Pleasanton, Calif.
After the purchase, eBay would have a diverse customer base offering credit to a much wider spectrum of online shoppers, Mr. Cundiff said.
"Bill Me Later is the first to admit this: They don't have the bandwidth to go after that merchant segment, so it's really opening up an opportunity for them" to be a part of PayPal, he said.
PayPal has been trying to persuade large online retailers to offer its services for several years. Apple Inc. has offered its standard consumer payment service since 2004, and Dell Inc. has done so since 2005. Last week PayPal announced that Wal-Mart Stores Inc. has begun accepting PayPal online; Wal-Mart has been a Bill Me Later customer since 2005.
"We've really pushed in the last two and a half years to go up market in terms of our merchant services business," Mr. Thompson said, and buying Bill Me Later would further expand its roster of big-name online merchants.
Bill Me Later offers credit for individual purchases made at online retailers. Its systems can determine whether to extend credit almost instantly, using only the buyer's birth date, the last four digits of the buyer's Social Security number, and the shipping information provided to the merchant.
The credit is offered by CIT Group Inc.'s CIT Bank of Salt Lake City, and First Data Corp. handles the billing. Bill Me Later is accepted at many large retailers, such as Toys 'R' Us Inc. of Wayne, N.J., and Amazon.com Inc. of Seattle, which currently owns a minority stake in Bill Me Later.
Mr. Marino said eBay would treat Amazon.com as any other Bill Me Later shareholder. "The whole company was purchased, and all the assets, so they, like all shareholders, will share in the proceeds."