It’s surprising that no system has emerged to handle the immense volume of person-to-person payments generated by online auctions. In August, Prudential estimated that 66% of eBay auctions were converted into sales (the remaining 34% had no winning bidder). If that percentage held through the entire third quarter, eBay sellers delivered about 24 million “bills” to winning bidders, or eight million per month.

Yet, less than 7% of sellers allow payment by anything other than snail-mailed paper (see table below). eBay purchased BillPoint in May in order to offer an electronic (via credit card) payment solution. The company says it will be available by year-end. In the meantime, PayPal.com has begun to emerge as a payments alternative on eBay. It’s not as well known as BidPay, which mails Western Union money orders for a minimum of $5 per item. But as soon as participants discover it is free and real-time, it should catch on quickly.

eBay Sellers Accepting Remote Payments¹

Source: OBR search on eBay.com, 11/29/99

(1) number of eBay auction listings mentioning the company as a payment alternative; 3.4 million total listings 11/29/99

(2) Transactions are eventually charged to credit cards for all types

(3) Up from 3 on 11/22/99

Person-to-person payments are on the verge of gaining even more momentum with the entry of at least three providers in the next four to six months, including Checkfree (see table below):

Person-to-Person Payment Entrants

*working name, not actual product name

This is merely the tip of the iceberg. We estimate there are several hundred companies working on various payment and stored value schemes, from eWallets, to universal gift certificates, to new global currencies. A partial list is provided on the next page. In addition, financial institutions are expected to jump into the market leveraging their existing IT systems, risk management, and customer service organization.

Other Online Payment Entrants

Sources: Online Banking Report, 11/99; The Industry Standard, 11/15/99; Release 1.0, 10/18/99

With the exception of Checkfree, whose CTO, Ravi Ganesan briefed us extensively on his company’s plans (Nov. 18), the P2P payment providers aren’t talking much. Confinity’s VP of Strategy, David Sacks, wouldn’t even tell us how many employees they had (Red Herring reported 14 in July). In our five years of covering Net banking, we’ve never run into this level of secrecy. Even though it makes our job more difficult, we can’t blame them. With $100s of millions, if not billions, at stake, it pays to be cautious about what you tell outsiders.