PayPal.com's Business Model (Page 2)

Abstract

The case describes the business model of PayPal.com (PayPal), the market leader in e-payment services. It discusses in detail the transaction process involved in sending money electronically. The case explains the types of user accounts of PayPal, the funds transfer mechanism, the user charges and the security systems employed by the company. The case also briefly discusses the marketing initiatives of PayPal, the benefits of its business model and the challenges faced by the company.

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BACKGROUND NOTE

PayPal was founded by Peter Thiel (Thiel), a Stanford Law School graduate who was running his own hedge fund at that time, and Max Levchin (Levchin), a computer science graduate from the University of Illinois, who had developed software which enabled users to send money to other users through mobile electronic devices. Levchin had plans to launch a company which would provide encryption technology.

To tap this opportunity, they came up with the idea of combining two extremely popular and widely used technologies -- the credit card network and e-mail. The result was PayPal, a simple software-based P2P payment service, which enabled people to perform secure financial transactions through e-mail and personal digital assistants (PDAs) . Recognizing its potential, Nokia Wireless Ventures and Deutsche Bank decided to invest $ 5 mn in the firm.

In July 1999, Confinity piloted PayPal when Thiel received the first round of funding of $ 3 mn from Nokia and Deutsche Bank through his palmtop. The venture capitalists used the software developed by PayPal for palmtops to beam the amount wirelessly to Confinity. PayPal was launched on a full-fledged basis on October 22, 1999, when Confinity's 24 employees sent small amounts of money to their friends as gifts. Initially, two versions of the product were launched - one each for e-mail and PDA - and they were offered free. By December 1999, the company had 10,000 customers. ....

        Case Code   ITSY040
   Case Length    18 Pages
              Period    1999 - 2004
 Organization     PayPal.com.
        Pub Date     2004
Teaching Note    Not Available
     Countries    USA
      Industry    Online Finance

Issues

• Study the business model of an e-payment services company

• To Develop an understanding on how an online payment system works

• Examine the online marketing initiatives of an e-payment services company

• Get insights into the security systems employed by an e-payment services company

• Study the privacy policy of Paypal.com.

• Analyze the weaknesses and possible threats to the business model of Paypal.com.

Case, PayPal.com, Electronic Payment System, Transaction Model, Automated Clearing House Network, Fee Structure of PayPal, Internet Security, Privacy Policy.

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.