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PayPal Inc., already viewed as an established payments brand in the industry, may be positioning itself as a more-serious contender in the space by adding more funding options such as cash and debit cards for its online accounts.

PayPal, the San Jose, Calif.-based payments division of eBay Inc., says the announcements it made last week with First Data Corp. and prepaid card provider Green Dot Corp. are intended to help merchants capture different segments of the consumer population. But industry analysts view it as something more.

"This is a sign that PayPal is going to rise above other [alternative-payment options] that have come and gone," says Ali Raza, executive vice president at Speer & Associates, an Alpharetta, Ga.-based consulting group.

PayPal's agreement with First Data enables debit cardholders in First Data's Star EFT network to link their Star debit cards to a PayPal account. The agreement could help merchants capture a portion of the consumers who feel uneasy about sharing debit card information to complete online transactions, Sanjeev Kriplani, PayPal senior director and general manager, tells ATM&Debit News.

The Green Dot partnership enables users of the MoneyPak "cash top-up card" to fund a PayPal account without the need for a banking account.

Star is the first network to use what is being called the PayPal Debit Access service, and PayPal plans to offer the product to other networks, Kriplani says.

"It's a way for banks to participate in online transactions," Kriplani says. "We want to increasingly partner with the banking community."

Financial institutions long have been leery of alternative-payment methods such as PayPal and Amazon Payments. According to one industry study, financial institutions are losing a significant amount of transaction volume to alternative-payment methods.

Though payment cards dominate the $170 billion e-commerce market, buyers use alternative-payment methods for approximately 15% of that volume, according to a Celent LLC report released last year. Celent estimates the major card brands and issuers of their cards stand to forgo $345 million in volume in 2010 and about $1.7 billion in 2015 to users of alternative-payment methods.

PayPal Debit Access may help only those financial institutions that tend to focus on customer relationships and do not wish to lose some of that relationship to PayPal, James Van Dyke, founder and president of Pleasanton, Calif.-based Javelin Strategy & Research Inc., said in an interview.

"[The bank's thinking may be] we'd rather have someone go through our partnership with Star than lose them to ACH," Van Dyke says.

First Data's agreement with PayPal not only helps to give those participating financial institutions a slice of revenue from online transactions but also a presence at PayPal's online checkout page, says Julie Seville, Star vice president of product development.

Participating financial institutions can market the PayPal account as soon as customers log in to online-banking services, Seville says. Customers can view a demo on how PayPal works, and the participating financial institution will send those interested to PayPal's Web site to complete registration for an account.
Online banking authentication adds an extra layer of security to the process and helps confirm to PayPal the customer's identity, Seville says.

The financial institution's logo will appear on the PayPal checkout page when a consumer completes a transaction. The Star logo also will have a presence on the Web page, giving both institutions the opportunity to "reinforce their brand," Seville says.

PayPal's agreement with Green Dot helps give it a presence with financially underserved consumers. It shows PayPal's willingness to enter an emerging prepaid market and enable the unbanked and underbanked to conduct PayPal transactions, Raza believes.

"They've opened a big door by getting into the cash-funding market," Raza adds.
More exists to the Green Dot agreement than just getting the unbanked and underbanked population to use PayPal accounts, Kriplani says. It was in response to what merchants were requesting.

"Merchants were telling us one way we can help was giving them access to different segments of consumers that they don't have access to today," Kriplani says. ATM

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