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Type: Subsidiary of E-bay
Industry: e-Commerce
Founded: 1998
Founder(s): Ken Howery
Max Levchin
Elon Musk
Luke Nosek
Peter Thiel
Ownership: Owned by E-Bay
Headquarters: 2211 North First Street
San Jose, CA 95131
Country: USA
Employees: 618 [1]
Revenue: $3.4 billion as of 2010 [2]
Blog: PayPal Blog
Facebook: PayPal
LinkedIn: PayPal
Twitter: TwitterIcon.png@PayPal
Key People
Scott Thompson, President

PayPal is a global payment service provider and a subsidiary of eBay, Inc, one of the leading e-Commerce companies based in the United States. PayPal is composed of two other billing services, called Payflow Gateway and Bill Me Later. Consumers with PayPal accounts can securely send and receive payments electronically using credit cards and bank accounts. The company is serving more than 103 million accounts within 190 markets and 25 currencies around the world. Its headquarters is located in San Jose, California.[3]


Beginnings of the Company

Max Levchin, an online security specialist, and Peter Thiel, a hedge fund manager co-founded PayPal. In 1998, they met at conference at Stanford University where Thiel provided a lecture. Levchin and Thiel agreed to become partners and created the company known as Field Link, which produced encyption software for wireless devices such as cellphones and palm pilots. Their idea was to make the handheld devices of consumers in to a secure digital wallet. Field Link did not click and the company was re-organized as Confinity. The name of the company was derived from the words confidence and infinity. The company offered money transfer services using palm pilot and other Personal Digital Assistants (PDAs). In 1999, Confinity launched PayPal when its engineer developed a software enabling consumers to pay electronically.[4]

Confinity and Merger

In 2000, PayPal became popular among e-Bay users and offered $10 sign-up bonuses to increase its customer base. During the same year, Confinity merged with its competitor PayPal was retained as the name of the company. By that time PayPal had already 1 million user accounts.[5]

In February, 2002, PayPal went public and offered 5.4 million shares. Its opening price was $15.41 per share., which was 18 percent higher than the $13 per share price set by under writers. PayPal enjoyed a 54.5 percent gain at the end of the trading day with its stock price valued at $20.09 per share.[6]

Ebay & PayPal Merger

eBay acquired PayPal in October, 2002, for $1.5 billion and became its subsidiary. PayPal continued to offer its services to its costumers independently, however eBay decided to discontinue PayPal's online gaming business. eBay's Chief Financial Officer explained that the decision was due to the uncertain legal situation of online gaming. At that time, the U.S Congress was in the process of legislating a bill to ban oline gambling.[7]

International Expansion

In 2004, PayPal was introduced as payment option for eBay consumers in United Kingdom. In 2005, PayPal opened its first office in China and introduced its website under the simplified Chinese Name BeiBao 贝宝在中国推出。. By 2006, the company had expanded in 103 markets and started accepting payments in different currencies. By 2007, PayPal introduced the VISA debit or credit card as a new method to withdraw money for users in 23 countries. PayPal users in the Philippines, Indonesia and India are able to withdraw their money through their local bank account. Sinn 2008, the company has been operating different sites in Asia using 8 different languages. At present, PayPal has 153 million accounts within 173 countries and accepting transactions in 24 currencies around the world.[8]

ICANN Involvement

Bill Smith, PayPal's technology evangelist, serves as the company's advocate and representative to ICANN and is particularly involved in issues related to the reliability, security and stability of the Internet. He is also a member of the Security, Stability and Resiliency of the DNS Review Team (SSR RT) and the Whois Policy Review Team in the GNSO.[9] [10] He also represents PayPal at the IGF, ARIN, WSIS, ITU and the IETF.[11]

In 2011, PayPal participated during the ICANN 40 meeting in discussions regarding the deployment of the DNSSEC. The company was represented by Andy Steingruebl, PayPal's Internet standards and governance manager. During the meeting, he expressed the company's commitment for supporting DNSSEC and noted that the company had started signing the technology to its smaller and lesser used sites before signing its main site.[12]

Awards & Recognition

The company's most recent awards include:

  • Ernst & Young Entrepreneur Of The Year 2011- The company's president, Scott Thompson, was named as one of the winners of the Northern California recognition for accomplishment as a business leader and contributor to that tech community.[13]
  • Fast Company Top Innovator in Finance- Its initiative in integrating different payment options such as mobile apps and devices and allowing third party developers to work on its system was given recognition as the most innovative company in finance.[14]
  • Tech Exec Networks Information Security Executive Awards 2010- PayPal's Chief Information Security Officer, Michael Barrett, was recognized as one of the leasing security expert because of his initiative in supporting technical innovations in security standards on a broad scale.[15]
  • Lithium Technologies Social CRM Excellence Award- In 2010, PayPal won the Best New Community category.[16]
  • Best of Omaha- PayPal ranked as the city's Best Employer for the year 2009 and 2011.[17]

Legal Battle

Patent Infringement Lawsuits

On February 4 2002, the Initial Public Offering of PayPal was delayed due to a patent infringement lawsuit filed by CertCo, a private online security and risk management company based in New York.[18] CertCo alleged that PayPal's electronic system infringed its patent no. 6,029,150 (Payment and Transactions in Electronic Commerce System), which was awarded by the United States Patent and Trademark Office (USPTO) on February 22, 2000.[19] PayPal denied CertCo's allegations and described it a deliberate attempt to disrupt its initial public offering.[20] On April 25, 2002, PayPal settled the lawsuit with CertCo. According to them the settlement agreement involved "a non-consequential payment and mutual releases." The details of the settlement agreement were not disclosed to the public.[21]

A second patent infringement case was filed by Tumbleweed Communications in the US District Court of Northern California on May 7, 2002. Tumbleweed Communications claimed that PayPal violated its electronic notification processes and document storage and retrieval patents. E-bay, the parent company of PayPal agreed to settle the legal charges under a cross licensing agreement in December of the same year.[22]

In September, 2002, another patent infringement case was filed against PayPal by First USA Bank, N.A., a subsidiary of Bank One Corporation. The company claimed that PayPal infringed its two patents; one was the use of telephone numbers and personal identification numbers and the use of e-mail addresses as transaction identifiers for its cardless payment system. First USA Bank asked the court to issue an injunction order to stop PayPal from using its payment system. In addition, the company asked for financial damages from PayPal. PayPal denied the accusations and promised to fight the case in court.[23][24]

Class Action Lawsuit

PayPal faced another legal battle in 2002, just days after its Initial Public Offering. A class action lawsuit was filed by the law firm Jacoby & Meyers on behalf of consumers, alleging that the company violated the Federal Electronic Fund Transfer Act. According to Atty. Gail Koff, PayPal locked customers' accounts instead of freezing for the amount of transaction in question when it suspects that a fraud has been committed. Since the consume'rs entire accounts were frozen, they weren't able to make any business transactions. They claimed that PayPal's restriction of their accounts is illegal.[25] A similar class action lawsuit was filed by Girard, Gibbs & De Bartolomeo, a law firm in San Francisco at the U.S. District Court for the Northern District of California.[26] In 2004, PayPal settled the class action lawsuit and agreed to pay $9.25 million, to be distributed to all the complainants. The administrative costs and legal fees were included in the settlement.[27]

Shareholders Lawsuit

On July 7, 2002, two shareholders of PayPal filed a lawsuit over the company's merger with eBay. The shareholders claimed that eBay's proposed price for the Paypal stocks is "inadequate and unfair", which is 0.39 eBay shares for every PayPal share. The total value of the transaction was $1.5 billion. Despite the objections, the Department of Justice cleared the Ebay and PayPal merger after conducting an investigation.[28] [29]