Wells Fargo & Co. says its substantial growth in the Internet merchant processing market - which it says other banking companies are ignoring - has resulted from its courting of emerging market segments.
However, a big chunk of the San Francisco company's volume is still coming from its relationship with PayPal Inc.
Wells reported this week that it processed $3.8 billion of Internet merchant payments in the first quarter, 50% more than it did a year earlier. Its volume last year doubled, to nearly $12 billion.
The Commerce Department estimated the third-quarter online merchant market at $13 billion, so Wells' $1.9 billion total for that quarter represented a 15% market share, according to Debra Rossi, the executive vice president of its business Internet services.
Wells processes online credit card payments for 61,000 Internet merchants, and Ms. Rossi said it is now focusing on segments that have not previously generated significant online commerce.
Processing clients such as Orange County, Calif., and the University of Minnesota are the kind Wells is trying to attract today, she said. "We have just begun tapping some of the traditional customers that Wells Fargo has that haven't put their businesses on the Internet."
"The nice thing about these emerging segments is that they are low-risk," Ms. Rossi said. "You're not going to use a stolen credit card to pay your taxes or to pay a parking ticket."
"There are not a lot of people" in the online merchant processing market, and while some of the market participants require merchants to go to vendors to develop their Internet payment systems, Wells can provide this for clients.
"We give them one-stop shopping, and we think that gives us a competitive edge," she said.
Greg Cornwell, the vice president of strategic sales at Chase Merchant Services LLC, has spotted the same trends in emerging markets.
And though it does not breakout Internet payments, he also expects revenues to increase from areas such as insurance, utilities, and cable television services.
Meanwhile, analysts say much of Wells' success in the online market stems from its merchant processing work for PayPal, a unit of the online auctioneer eBay Inc.
PayPal said its payment volume grew 64% in the first quarter, to more than $4.3 billion. Though Ms. Rossi said Wells has an exclusive relationship to provide payment processing to PayPal, the banking company's overall total is lower than PayPal's for several reasons.
For example, Wells handles PayPal's card transactions and electronic check payments made on behalf of customers through the automated clearing house network. But Wells' Internet division counts only PayPal's card transactions in its tally; ACH processing is done by the bank's commercial wholesale group.
Alyssa Cutright, the senior director of financial services at PayPal, said about 55% of its volume is generated by cards, with the rest coming from ACH transactions and stored value in PayPal accounts. According to those figures, PayPal handled nearly $2.4 billion of card transactions in the first quarter, or 62% of Wells' $3.8 billion of volume.
Avivah Litan, a vice president at the research and consulting firm Gartner Inc., said those figures underscore the importance of PayPal to the bank.
"Wells is probably the biggest small-business acquirer out there, and PayPal is bigger than that," Ms. Litan said.
Gary R. Craft, the chief executive of the San Francisco advisory firm Financial DNA LLC, said PayPal moved its card business to Wells Fargo two years ago from a nonbank processor to gain recognition in a skeptical marketplace.
"They needed more legitimacy, so they turned to Wells Fargo," he said. But now "Wells Fargo is riding on the coattails of PayPal."
