PayPal has a new customer: Dell.com.
The San Jose subsidiary of eBay Inc. said Monday that Dell Inc. is now including the payment service as an option for customers at its online store.
Observers say the agreement may boost PayPal’s average transaction size, which was $57 for the third quarter.
PayPal also announced that it has begun offering its non-eBay merchant customers gift certificates to sell to their customers. The virtual gift certificates can feature a customized appearance, range in value from $5 to $500, and never expire, but a certificate can be used only at the merchant that sold it.
“A lot of the big stores do this online today,” said Amanda Pires, a spokeswoman for PayPal, which has offered the service to eBay sellers since 2003. “People like to receive, essentially, cash to spend.”
Theodore Iacobuzio, a managing director in the executive research office for TowerGroup Inc., the Needham, Mass., research unit of MasterCard International, said that the expansion of PayPal’s gift certificate service is not revolutionary — online gift certificates have been available for years — but the market is growing dramatically.
“People are shopping online more and more, there’s no doubt about that,” and they are buying more gift certificates, he said. “It goes up every Christmas.”
This year the market for gift certificates and gift cards will reach $55.5 billion, including $47.5 billion of the retailer-to-consumer type of products PayPal is offering, Mr. Iacobuzio said. The compound annual growth rate for gift certificates has been about 17% since 2002.
Pam Winks, a managing consultant with the technology and financial services consulting firm CC Pace Systems Inc., said PayPal could offer other types of gift certificates. “A next generation, maybe next year, could be for PayPal to migrate to an open environment where gift certificates can be used at any merchant that accepts PayPal.”
Such a change would make PayPal “the American Express of e-commerce,” she said.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said the Dell deal would “start to get consumers thinking about putting larger amounts of money on their PayPal … [accounts], because the average spend at a Dell site versus your typical eBay transaction is magnitudes larger.”
PayPal is also a payment option at Apple Computer Inc.’s iTunes Web site, where songs sell for 99 cents, but not at the company’s online computer store, where its cheapest computer is $499.
But Dell, of Round Rock, Tex., is offering PayPal as a payment option for its all its products, including computers. Jennifer J. Davis, a Dell spokeswoman, would not say how large the average Dell.com transaction is.
Customer demand prompted Dell to make its deal with PayPal, she said. “There are a lot of loyal PayPal users.”
PayPal has 86.6 million account holders, 24.5 million of whom used the service in the third quarter.
Edward Neumann, a managing director at CC Pace, said that one of PayPal’s main selling points for merchants is that the transaction fees are lower than those offered by merchant acquirers for traditional credit card purchases.
Those fees will be just as appealing to Dell, he said. “Dell, as an online merchant, enjoys better merchant discounts” than smaller companies can negotiate, “but PayPal is still lower.”
