Processing gateway to be combined with PayPal’s merchant services
eBay Inc. and VeriSign Inc. said they had agreed to a strategic alliance that calls for the two companies to collaborate on payment services and security for e-commerce.
eBay said it is buying VeriSign’s payment gateway business, which allows sellers to authorize and manage online payments, for $370 million in cash and stock, in a move to expand the customer base of its online payments business PayPal. It expects the acquisition to close in the fourth quarter of 2005.
PayPal to get two-factor authentication and digital certificates
The deal includes a commitment to add VeriSign’s security products, including two-factor authentication and digital certificates, to the revamped PayPal site. eBay hopes that the acquisition will give its PayPal division a bigger foothold in the small and medium-sized business market as it looks to expand from its traditional consumer base.
VeriSign, a top supplier of online security software, also will provide eBay and PayPal with a suite of security services that includes use of so-called two-factor authentication, a security system that gives customers a one-time password or digital certificate to help protect against online identity theft.
There are increasing calls in the finance industry for two-factor authentication to become the norm. Advocates point to The Netherlands, where most banks use the technology, as evidence that it can cut fraud significantly. But security experts have warned that such systems are easily cracked, and predict that, after an initial drop in crime, the numbers will bounce back up.
Stratton Sclavos, chairman of VeriSign, called the deal "one of the largest consumer authentication deployments in the industry".
The San Jose, California-based online auctioneer said the integration would generate an incremental $100 million of revenue, with operating margins of 20 percent, in 2006. It posted revenue of nearly $3.3 billion in 2004.
eBay’s PayPal said the acquisition would enable it to include new small- and medium-size business customers in its user base, as well as expand its repertoire of payment processing options. Recently, many startups have entered the online payments business, especially those targeting the market that has sprung up around the purchase and sale of digital content.
This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly" said Jeff Jordan, president of PayPal.
VeriSign’s payment gateway is a popular and market-proven product that perfectly complements PayPal’s existing payment services, said Jeff Jordan, president of PayPal. We are very excited about the opportunity to extend the benefits of PayPal’s services to the VeriSign customer base. This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly.
The payment gateway works instantaneously and on a broad scale to give merchants a way to authorize process and manage online payments, the companies said in a statement. The additional payment system expands the range of processing choices available via PayPal it said.
For VeriSign going forward, this will allow the company to focus on its online security business, said Stratton Sclavos, the company’s chairman and CEO.