PayPal Inc. has a new plan for winning more merchant business: becoming invisible.
A program the payment processor is to unveil today allows online retailers to accept credit card payments that are routed through PayPal but look like standard card payments to the end user.
PayPal hopes the service will attract larger merchants, but analysts said another goal might be to dispel consumer perception that Web sites that process card payments through PayPal are less established than those that can accept cards directly.
The service "lets merchants process credit card payments directly on their Web site while PayPal works in the background, invisible," said Stephanie Tilenius, the vice president and general manager of PayPal's merchant services division.
PayPal is a unit of eBay Inc. of San Jose, and 71% of its payment volume in the first quarter came from processing transactions for eBay's auctions. PayPal has long wanted to move into other online payments, and said that the direct payment service is part of its plan to acquire customers from outside the sphere of online auctions.
At the same time, using PayPal as a back end for card payments could help eBay retain and expand its relationships with the many small Internet merchants that use eBay as their primary storefront.
Sara Bettencourt, a PayPal spokeswoman, said the new service is also intended to appeal to merchants that have had such success selling on eBay that they are now looking to build their own online storefront.
"It's basically for any seller who is growing, and as part of a growing business needs to set up a payment solution," she said.
Merchants using direct payment will route all their card transactions through PayPal. Customers do not need a PayPal account, and only the merchant's name appears on their monthly statement.
Many e-tailers already accept PayPal transactions that are charged to a consumer's credit card, but customers must make a choice to use their own PayPal account and to use their card to fund the merchant's PayPal account. In those cases, PayPal's name appears alongside the merchant's on the monthly statement.
With the new service, the merchant's site lists credit cards as payment options. When people choose to use their cards for a purchase, the PayPal software works behind the scenes to charge the payment to the card and then deposit the funds into the merchant's PayPal account.
Ms. Tilenius said PayPal is offering merchants the service as an alternative to signing up with merchant acquiring companies to accept cards. "We're cheaper and we're easier to use," she said.
Merchant acquirers' rates typically vary by volume, and small merchants with low volume have less negotiating power and tend to pay higher rates, analysts say.
PayPal is charging merchants $20 a month for the payment service, which also includes an express checkout feature for other PayPal transactions. There is also a per-transaction fee of 30 cents, plus 2.2% to 2.9% of the transaction price, which will vary by the merchant's volume.
Chris Musto, a vice president for research at Watchfire GomezPro in Waltham, Mass., said the direct payment program might appeal to merchants who believe it looks bad to be limited to accepting PayPal.
"If you see the only form of payment that someone accepts online is PayPal," Mr. Musto said, "it suggests that they're not big enough or have not been around enough to have a traditional merchant processing relationship."
Ms. Tilenius said changing consumer perception was not a consideration in the launch of the direct payment service. She noted that PayPal's brand is well known and that the company now handles about 9% of U.S. and 5% of global e-commerce transactions.
The direct payment offering might help PayPal land more business from larger e-commerce sites, Ms. Tilenius said. "We're finally getting critical mass," she said.
PayPal has 71.6 million accounts, and 22.1 million of them were involved in transactions in the third quarter of 2004.
Mr. Musto agreed that some large merchants might opt for direct payment out of convenience rather than for cost considerations or out of concern that consumers do not think highly of merchants' processing resources.
"I can also see a merchant saying, 'I can qualify for MasterCard and Visa, but I don't mind consolidating everything through PayPal'," he said.
Avivah Litan, a vice president and research director at Gartner Inc., a market researcher in Stamford, Conn., said that many large real-world companies "still don't have a lot of online sales."
Large companies may consider PayPal because "some merchants really are cornered by the credit card companies and they don't have a lot of choice," Ms. Litan said. "There's a lot of pent-up anger and frustration" about polices that merchants see as unfair.
With PayPal, "the transaction fees are lower than a credit card," and "dealing with PayPal has got to be a better experience than dealing with the credit card companies," Ms. Litan said. And for small and midsize merchants, she said, the direct payment is "a no-brainer."
If this strategy helps PayPal gain wider acceptance among merchants, she said, PayPal could eventually "get out into the physical world and issue their own cards."
The most likely card-issuing partner would be General Electric Co.'s GE Consumer Finance, which already provides credit for some of PayPal's customers, though Ms. Litan said such a partnership may not happen for another two or three years.
PayPal is also introducing today an express checkout feature, which is meant to make it easier for people to authorize online purchases through their PayPal accounts. When people want to use PayPal, express checkout links to PayPal's Web site and opens a browser window that includes the shipping and billing information the customer has on file.
Mr. Musto said customers of small Internet businesses would like this feature.
"PayPal may be involved in a number of transactions where its brand is stronger in the customer's mind than the merchant's brand," and the customer is more comfortable seeing PayPal when authorizing payment because that is the most sensitive part of the checkout process, he said.
