This paper examines three prominent methods of online monetary exchange — PayPal, RBC Royal Bank's internet banking platform, and independent credit card transaction processing — within the context of the growing internet marketing economy. It analyzes PayPal's rapid user base growth, its role as an eBay subsidiary, and its appeal to small retailers as a low-cost payment intermediary. The paper then evaluates RBC Royal Bank's evolution from ATM-era electronic banking to a fully redesigned internet banking platform serving over 12 million customers globally. Finally, it contrasts these services with the complexity and cost of standalone credit card merchant account setups, assessing the implications of each method for consumer security, transaction fees, and global accessibility.
Modern changes in the exchange of currency have proliferated the internet marketing world. Customers have faster and easier access to methods of exchange, deposits, and payments than ever before, and those changes have come rapidly as internet commerce demands ever-greater ease of exchange. A global economy requires global economic infrastructure solutions for the transfer of funds, and to a large degree the internet market has answered the call for change and availability of services. Yet the substantial growth of internet sales has also, arguably, caused the growth of subsystems and infrastructural shifts that may not have been implemented with full knowledge of their implications.
With security at risk, currency exchange rate fluctuations, and global monetary regulations all in play, consumers must be aware of the types of services they are using and how those services might affect the efficacy of their transactions.
Internet marketing not only plays a substantial role in the exchange of goods and services, but now more than ever the exchange of money has itself become a marketable aspect of this new and growing market. Three methods of exchange are of primary interest to this research, and also to consumers and marketing professionals: PayPal, the RBC (Royal Bank of Canada), and the broader alternative of independent credit card transaction processing. In these three methods there are clear indications of change in both demand and reliability.
PayPal, though it has recently drawn criticism from consumers and the legal system alike, has been the leading site of its kind for many years. Users who have expressed concern about PayPal's policies and procedures are quick to point out that PayPal is not a financial institution and is not federally insured. Yet such issues are rarely important to consumers unless a problem occurs. The availability of PayPal — for those who understand how it works — has made older, less modern forms of currency exchange, such as money wiring or high-fee insured transfer services like Western Union, largely a thing of the past.
PayPal is a web payment processing service acquired by eBay in late 2002. Headquartered in Mountain View, CA, it operates as an independent brand. It is used to shop at PayPal-enabled retail sites as well as to send or request money from anyone with an email address. Both personal and business services are offered, and it is widely used as a payment system for online auctions. PayPal also offers a complete shopping cart service that can be added to a website.[i]
Its association with eBay may have a great deal to do with its growth and success. As eBay grows, so does the PayPal user base. Yet in a marketing sense, name recognition and the general ease of use reported by most users is the key to PayPal's successful growth over the last several years.
In 2002, the company went international, allowing its customers to accept payments in euros and pounds. At the end of 2002, PayPal had 20 million members and more than three million businesses registered.[ii] PayPal boasts user base growth of more than 150% in slightly less than a year.
By late 2003, PayPal had quickly become a global leader in online payment solutions with 50 million account members worldwide. Available in 45 countries, buyers and sellers on eBay, online retailers, online businesses, and traditional offline businesses were all transacting through PayPal.[iii]
Though it is difficult to verify such claims — as the PayPal system is notoriously secretive about member demographics and usage frequency — Hoover's Online, a credible financial information source, states that PayPal transactions average approximately $50 each and that the company processes nearly 630,000 transactions per day. Hoover's also notes that in addition to its role as an eBay subsidiary, PayPal maintains an alliance with Wells Fargo Bank, a company that aggressively markets online services.[iv] It would not be surprising to find that this alliance coincides with a shift in Wells Fargo Bank's broader marketing strategy. Even assuming growth at 100% rather than 150%, the figures represent a substantial calling card for the marketability and success of the platform.
The following financial overview illustrates PayPal's rapid revenue growth:[v]
The availability of PayPal and similar services benefits consumers in several important ways. Most notably, the rapid availability of a relatively inexpensive payment method filled an obvious niche in the new internet economy. Small and even large retailers can use this service in place of more costly, independently procured credit card processing systems, which require considerable technology investment and carry significantly higher fees than PayPal's model. The retailer absorbs the cost of relatively small fees: it is free to send money, but the recipient is charged against the funds received — the reverse of the Western Union model. Additionally, PayPal can act as an intermediary, allowing customers to use their existing checking accounts rather than a credit or debit card.
The multi-step process of independently providing credit card transaction services does not readily meet the needs of small retailers, such as those operating on independent auction sites. The process is complicated and carries a variety of additional fees that are not feasible for a low-investment startup, almost regardless of its size. The key steps include the following:
This is the process of being able to actually accept credit cards and have transactions deposited into a checking account. It involves submitting a bank credit application for Visa and Mastercard acceptance and arranging for funds to be transferred. To accept other cards such as American Express or Discover, a retailer must sign up with those networks separately — usually accomplished with a phone call once a merchant account is established, but still requiring additional effort.[vi]
Once a merchant account exists, a mechanism to process transactions online is required. Traditionally, merchants either swiped a card in-store, keyed it into a point-of-sale device, or used payment processing software for physical or mail-order transactions. Internet payment processing involves transaction processing over an open internet connection, enabling transactions to be performed online — potentially on the web server itself. Internet transaction services typically provide an API, an HTML-type input terminal for manual entry, and full online reports of transactions and batches. Transaction processors are separate from the banks that provide merchant accounts, although some providers present a single transaction statement that makes it appear as one unified service.[vi]
Once the logistics are established and credit cards can be accepted and processed over the web, the software must be integrated into the application. Most providers offer an API that allows code-level access to processing functions. Many of these APIs are written in C and require writing a wrapper DLL. API architecture also varies between client-server and pure server-side implementations. Client-server configurations are more difficult to set up, as the client side must be configured with secure keys and the server must be configured to match. Pure server-side APIs typically require no client setup and are more flexible, as they allow use of HTTP tools of the developer's choice.[vi]
Hardware and software must also be purchased, and significant fees must be paid — just as they are by brick-and-mortar retailers. From the consumer's perspective, there may be a need to transmit personal information with every transaction, exposing them to potential fraud. Loss of sales can result when a consumer is uncomfortable transmitting account information via unsecured channels, and enabling internet transaction processing through standalone services often costs considerably more than using an intermediary like PayPal.
"RBC's digital overhaul and global banking capabilities"
"Debate over online banking as independent or supplemental"
If a service is only available online, or feasibility of in-person use is not within reason, a niche is filled by only those banks or services that offer it — and therefore the marketing strategy of the system is crucially important to its ultimate growth, success, and profitability. Though most banks offer some form of online banking, those who provide comprehensive services of this nature are clearly at an advantage. Consumers, though perhaps unaware of it, could often use fully insured bank-provided services that would negate the need for an uninsured system like PayPal.
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