eBay announced Q3 2008 results today, along with a significant PayPal milestone: off-Ebay purchase volume has for the first time exceeded on-eBay purchase volume. Before looking at what this means, the terminology here is worth clarifying. On-eBay purchase volume is all purchases made through PayPal to finalize purchases inside the eBay marketplace. Off-eBay purchase volume is all purchases made using PayPal with third-party merchants, unrelated to eBay.
The 51% milestone is significant because many believe the PayPal story is really the person-to-person, auction payments story. But if you’ve been following PayPal closely, as we have, you know that PayPal today is largely a B2C payment provider that has been growing exceptionally fast with third party sellers. Let’s let the data tell the story.
In the early days — and I appreciate the irony in referring to 2002 as the early days — PayPal had a nice split between third party purchase volume and auction purchase volume. In Q1 2002, 40% of PayPal’s purchase volume came from third-party merchants. With increased visibility, that metric had risen to 44% by Q3 2002. But after the firm was purchased by eBay, purchase volume started to shift towards auction payments. This made a lot of sense, as part of eBay’s rationale for purchasing PayPal was to provide better and tighter integration with marketplace auctions. By the end of 2004, off-eBay purchase volume was down to 29%.
Behind the scenes, PayPal was beginning to make a big push towards third-party usage and was in the early stages of development on PayPal Express Checkout. By the end of 2006, off-eBay purchase volume was up to 35%; by the end of 2007 it was at 44%. And now, three quarters later, off-eBay TPV is up to 51% of global purchase volume.
Other key PayPal metrics announced today:
- $14.81B TPV (28% Y/Y growth, but down 1% from prior quarter)
- 65.3 million active (19% Y/Y growth)
- 214.5 million transactions (25% Y/Y growth)
- 35% international (based on purchase volume); 45% international (based on revenue)
- 3.89% revenue rate on purchase volume (unchanged)
- 29 bps loss rate (up from 28 bps a year earlier)
One more thing… PayPal today contributes 28.2% of eBay revenue, up from 24.8% in Q3 2007.
Russ is the partner in charge of Glenbrook’s Payments Boot Camp® program and the co-author of “Payments Systems in the U.S. – Third Edition” (fourth edition planned for release in 2026). He is an industry pioneer in the commercial use of Internet technologies, bringing over 35 years of experience in payments industry analysis, strategy development, and product conceptualization to Glenbrook.
Russ currently works with Glenbrook clients in all aspects of payments education and strategy development, including global acceptance, digital payments, risk management, and payments technology. Before joining Glenbrook, Russ was a general partner with The NuVantage Group, where his clients included CommerceNet and the Financial Services Technology Consortium. Russ has also served as director of emerging technologies for Digital Equipment’s corporate research group in Palo Alto.