(Pay)Palling with the big players
PAYPAL might be refusing smaller operators at present, but with a reputation for aggressive expansion it is only a matter of time before it makes a big move into the sector.
ALTHOUGH INTERNET payment giant PayPal has always kept a low profile with regard to the online gaming market, it has been active in the sector since its return in 2006 and signed up Paddy Power last November and 888 and PartyGaming earlier this year.
At present, the company’s emphasis on partnering only with gambling companies able to guarantee the highest transaction volumes; bingo firms Cashcade and Virtue Fusion were among those reportedly rebuffed by PayPal for being unable to guarantee sufficient payment volumes, means its egaming market presence is still some way off that of 2002 when it was acquired by eBay.
Marc Wood, former managing director of payment processor DataCash, suggests the existing ewallets which PayPal could compete against should not be too worried “if PayPal can’t be bothered or doesn’t want to deal with smaller operators”. To illustrate the point, PayPal is currently offered by just 75 gaming sites in the UK, compared to more than 1,000 for Moneybookers.
However, given that aggressive expansion of its merchant services division has been a cornerstone of the PayPal business in recent years “ total payment volume grew 35% to US$8bn year-on-year in the fourth quarter of 2008 “ Wood thinks it’s only a matter of time before PayPal “starts trawling around the 2,000 casinos that are out there”.
After all, there are only so many big accounts for PayPal to hoover up, and as Google UK proved with its reversal of its AdWords policy last year, it’s often difficult to resist the lure of such a lucrative sector when your revenue streams from less buoyant industries are contracting in the downturn. Gaming is also one of the few online sectors where service providers can charge merchants a premium “ up to 8% of deposits to some online casinos “ to cover supposedly higher risks of fraud and bad debt.
Wood thinks PayPal’s scale and low transaction charges relative to others already in the space could see it “clean up” if it began undercutting other providers more widely on merchant pricing.
The operators themselves are literally scrambling to bring PayPal on board. Understandable given its brand name and the fact that it has access to a database of 70 million active accounts through its association with eBay. Wood says PayPal could even choose to leverage this huge customer base within the gaming space.
“I would be trying to sell to these to tell them they can use their accounts for online gambling now,” he suggests.
Embracing competition
That so many potential visitors to gaming sites already have PayPal accounts and the global brand awareness it enjoys relative to existing ewallets in the space suggests the likes of Neteller and Moneybookers will also be watching PayPal closely.
Moneybookers’ vice-president of sales and account management, Lorenzo Pellegrino, says the company is “embracing” competition from other ewallets, as it helps educate customers on the merits of using them rather than credit or debit cards, which account for approximately 70% of transactions on some operators’ platforms.
Pellegrino also downplays the threat to his business posed by PayPal, on the basis that Moneybookers is continuing to grow its egaming volumes much faster than PayPal, which it sees as more of “a merchant gateway than a consumer product for gaming”, also lacking in the gaming-specific features of his company’s product.
PayPal UK refused to comment on whether the company was planning a full-scale return to the online gaming sector, however, more operators will surely go live with PayPal during the course of 2009.
This article first appeared in the May edition of eGaming Review.
Get the news as it breaks: subscribe to the free eGaming Review RSS feed. Or sign up for our free daily Snapshot email.