Creating a new global standard for online payments 10/07/04

PayPal overview

• 50M user accounts

• 5 currencies, 45 countries

• Alternative funding options for buyers who don’t own credit cards or prefer not to use them:

• Bank account transfer• eCheck• Stored balance• Buyer Credit 1 2 3 5 7 8 10

1214

1719

2327

3235

40

4650

PayPal Member Account Growth through Q2 ‘04

A growing community of users

eBay is a premier growth company …

1

10

100

1,000

10,000

100,000

1,000,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43

(Real $M)

STARBUCKS

GMV

1 5 10 15 20 25 30 35 40

Years from incorporationNote: Sales and GMV adjusted to reflect 2003 dollars. http://www.bea.gov/dn/home/gdp.htmSource: eBay; US Department of commerce; Bureau of Economic Analysis; BCG analysis.

1

10

100

1,000

10,000

100,000

1,000,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43

STARBUCKS

… and so is PayPal!

GMV

1 5 10 15 20 25 30 35 40

Years from incorporation

TPV

(Real $M)

Note: Sales and GMV adjusted to reflect 2003 dollars. http://www.bea.gov/dn/home/gdp.htmSource: eBay; US Department of commerce; Bureau of Economic Analysis; BCG analysis.

How PayPal works

SendersSenders

Visa/MC, Amex,

Discover

Bank Account

Debit Card (e.g., Switch-

Solo in UK)Stored Value

Account

Bank Account

PayPal Debit MasterCard

Paper Check

Another PayPal account

Stored Value Account

ReceiversReceivers

eCheck

Why PayPal works for buyers

• Free to use• Pay anyone with a credit card or bank account: “online wallet”• Fast, secure payment – 1 week → 1 minute• Stores financial information securely to maintains user privacy• Works cross-border

eCommerce

P2P/remittances

Importance PP competitiveness

Cost

Convenience

Rewards/loyalty points

Security

Network

Why PayPal works for sellers

• Enables credit card acceptance• Faster payment = faster inventory turn• Easy to sign up• No setup, monthly or gateway fees• Competitive price with no minimum time commitment• Fraud protection – 25 bp vs. 110 bp

Complementary missions

The world’s online marketplace

The world’s online

payments standard

Powering Online

Commerce

Symbiotic relationship with eBay

• Increases velocity of trade

• Enhances trust & safety

• Enables innovation

• Provides the aggregation point for small business

• Drives critical mass of buyers & sellers

• Solved counter-party problem

Impact to eBay marketplace

56%

49%45%

41%38% 39%

32%

58%53%

48%44%44%

68%68%

0%

10%

20%

30%

40%

50%

60%

70%

80%PayPal integration

Year-over-year US transaction revenue growth

Note: 2001 data reflects growth rates in total US revenues, not just “transaction revenues.” Transaction revenues have constituted over 95% of total US revenues from 2002 through Q2, 2004.

PayPal enables global trade

Can be used in 45 countries

PayPal available

PayPal available + Local Bank Acct. Withdrawal

Currencies Supported: US $, CA $, GBP £, Euro €, JP Yen ¥

Localized: US, UK, DE, FR, BE, CH, NL, AT

A Global Destiny

PayPal TPV

$0.63 $0.74$0.88

$1.10$1.30

$1.41 $1.59

$2.12

$2.63

$2.86$3.07

$4.42

$3.76

$4.46

Q1 01Q2 01

Q3 01Q4 01

Q1 02Q2 02

Q3 02Q4 02

Q1 03Q2 03

Q3 03Q4 03

Q1 04Q2 04

US

$ B

illi

on

s

• Milestones• Multi-currency support in November

2002• UK site: September 2003• DE site: July 2004• FR site: August 2003

• PayPal will continue to support eBay in key geographies where eBay is strong and payments solutions are required

% of PayPal revenues from Int'l

19.6%21.0% 21.4%

23.2%

26.2%28.7%

Q1 03Q2 03

Q3 03Q4 03

Q1 04Q2 04

Can banks profit from “remittances”?

• Yes, but…

• Market competition is fierce• MTOs have 90% of the “official” market (Western Union, MoneyGram)• MTOs have robust physical distribution, low access barriers, real time funds transfer• Internet P2P players (e.g., Yahoo PayDirect)

• Need to overcome the “the first mile problem”• Establish profitability to serve customers• Customer-friendly interface• Customer acquisition• No real time funds transfer between institutions• Legal/Regulatory barriers – USA Patriot Act, card associations, NACHA

• Need to overcome the “the last mile problem”• Receivers are largely “unbanked,” exhibit low financial literacy• Local bank networks (branches and ATMs) still in development• FATF

Possible market strategies

• Banks• Learn from past experiences – C2it, from Citibank• Acquire user base – lower barriers to access• Offer a compelling product• Compete on price, value

• MTOs• Business model already works• Compete on “real time funds transfer”• Offer a customer-friendly UI, “fast and secure” payment to reach out new

customer segments• Upgrade product line to offer P2P, “delayed payment” offering

• New technologies mean new opportunities• Leverage ATM networks• Use the proliferation of the Internet

Partnering for success in remittances

PayPal offers• User network of 50 million, with stored

financial information

• Millions of immigrants

• Convenient, “always on” front end in key sender countries: US, UK, DE

• Pricing is 50% less than MTO

• Real time funds availability (instant ACH or credit cards)

• Innovative products

• Trusted payments brand in US

• Secure platform

• Money transmitter license

• Compliant with USA Patriot Act

• International account-to-account transfers

PayPal needs• Banked senders and receivers, who are

online; OR

• Partner to deliver funds from a user’s PayPal account; OR

• Physical access points for offline or unbanked receivers

• Access to customers in receiver countries

• Sponsorship into the ATM network

• Compliance – OFAC, AML, etc

• Trusted payments brand in receiver countries

Segment share (projected)

Source: Financial DNA, June 2002; Celent Communications, August 2002

0%

10%

20%

30%

40%

50%

60%

2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E

Seg

men

t sh

are

Western Union

MoneyGram

Large banks

Card to Card ATM

P2P

• Card-based transactions will be disruptive to agent-based players like Western Union→ Ubiquity

– 30,000 McDonalds– 169,000 Western Union Agents– 1.2 million ATM locations

→ Acceptance– In 2003, there were 2.5 million remittance ATM-card holders in developing world– By 2006, that could be 13 million

• Revenue opportunity in card-based transactions could exceed $2 billion

Preferred payment methods

0

10

20

30

40

50

60

70

80

90

100

% o

f V

olu

me

US Canada France UK Italy Germany

Cashless Payment Usage

Checks Cards Bank Transfer

Source: BIS Red Book

Mexico

India

Prioritizing segments for remittances

• Sophistication of bank system

• Financial services coverage

• Trustworthiness of financial institutions

EU

# Segment size

($ Billions)

China

LAC

CAUK

• Internet adoption• Online penetration• High-speed access

High

Low

Low High

Philippines

Eastern Europe

Middle east

Thank You!

Merci Dankë Cheers! Domo arigatoXie xie Dhanyabad Abhar GraciasSpasibo Grazie Asante Sipas

Go raibh maith agaibh Murromboo Komapsumnida Shukriya Tashakkur Achiu Wanìshi Doh je Mahalo Toda Shukran

Aman VerjeeAverjee@PayPal.com

Dickson ChuDickson.Chu@PayPal.com