The retail e-commerce sector was worth an estimated A$17 billion in 2006, a figure that is expected to grow to A$30 billion by 2010. So says online payment provider PayPal in Jane Searle’s article titled "PayPal may offer credit and savings" (Australian Financial Review, 5 July 2007, p 18).

At Dilanchian we have a keen interest in e-commerce; some of our clients have effectively exploited it, we’ve watched particular industries embrace it and we’ve mused over the financial services regulations that apply to it. This post examines the success of PayPal and lists key considerations for those looking to add e-commerce functionality to their business.  
 

The dominance of PayPal

Most of us know PayPal as a popular method of online payment, especially following its acquisition by eBay. Here’s some interesting PayPal snippets you may not know:

• As reported by Searle in the AFR, according to Nielsen//NetRatings 22% of people named PayPal as their preferred means of payment.
• This makes PayPal the second most popular method of payment with online shoppers behind credit cards.
• According to Wikipedia PayPal operates in 103 markets (including China) and manages over 133 million accounts.
• Catherine Holahan stated in BusinessWeek that PayPal had last quarter revenues of US$439 million.
• Roughly 40% of the US$11.4 billion in payments that PayPal processes are from websites other than eBay.
• These PayPal services to non-eBay sites grew by 51% in the last quarter.

Whilst PayPal as a brand and service is undoubtedly still driven by eBay, the above statistics show it is far from confined to eBay. According to PayPal managing director Andrew Pipolo as quoted in Searle’s AFR piece, “we have lower chargebacks, and payment is much quicker so [the merchants] are happy to promote it as their preferred way of paying.” Evidence of such merchant support is clear; e-commerce big boys Rebel Sport and Telstra’s Trading Post have signed up to the service.

Stefan Heng’s Deutsche Bank Research report titled "E-Commerce stettles for established payments systems" states that PayPal is proof that “...a business model can only be successful if it takes account of the particular features of B2C commerce, is supported by established e-shops or financial service providers and can convince the buying public that it offers unique value added."

Heng argues that PayPal is the “exception to the rule” that most innovative payment systems struggle to take hold in the market. Recently Google’s Checkout service has emerged as a worthy and much talked up challenger. Whether PayPal will continue its dominance remains to be seen but at the moment it presents an attractive option for those seeking to set up an e-commerce facility.

Shopping list for e-commerce requirements

We have blogged in general terms before about IT security, e-commerce thievery and various forms of online exposure in general. Briefly put, e-commerce is built on trust as stated in our post “Build Trust for Success Online in 2007. In this post we referred an “online trust troika” consisting of Content (appropriate site architecture for reliable communication), Security (given innovation in various scams) and Legals.

For legals, every business is different. Seek advice based on your specific needs. As a general guide, here’s a short E-commerce Legal Shopping List to use before your e-commerce facility goes live.

The final word goes to the Australian eBusiness Guide (CCH, 2nd Ed.), a book which states that “the pace of change is now so great that all businesses must constantly monitor their activities and their business models, and those of their competitors, to ensure that they do not get left behind”. To avoid getting left behind in e-commerce, move forward with confidence based on solid legal foundations.