eBay 2002 Annual Report Download - page 11

Making Payments
Senders make payments at the PayPal website, at an item listing on eBay or another online
marketplace where the seller has integrated PayPal's Instant Purchase Feature, or at the sites of merchants
that have integrated PayPal's Web Accept feature. To make a payment at PayPal's website, a sender logs
in to his or her account and enters the recipient's email address and the amount of the payment. To make
a payment through Instant Purchase or Web Accept, a sender selects an item for purchase, conÑrms the
payment information and enters his or her email address and password to authorize the payment. In both
scenarios, PayPal debits the money from the sender's PayPal balance, credit card or bank account and
instantly credits it to the recipient's PayPal balance in the case of an eCheck payment, the funds are
credited to the recipient's PayPal balance after two to three business days. In turn, the recipient can make
payments to others or withdraw his or her funds at any time via check, electronic funds transfer, or via the
PayPal debit card. PayPal earns revenues when an account receives a payment.
Funding Payments
Senders fund payments in three ways:
‚ from the sender's existing PayPal balance;
‚ from the sender's bank account, using the Automated Clearing House, or ACH, network; or
‚ from the sender's credit card.
We incur funding costs on payments at varying levels based on the nature of the payment. To those
users who choose to maintain PayPal balances, we oÅer a money market rate of return on balances placed
in PayPal's Money Market Fund. The PayPal Money Market Fund, which is invested in a portfolio
managed by Barclays Global Fund Advisors, bore a current compound annual yield of 1.44% as of
December 31, 2002.
We use the terms ""balance'' and ""PayPal balance'' to refer to funds that PayPal customers choose
either to invest in the PayPal Money Market Fund (oÅered only to U.S. customers) or to authorize
PayPal to place in FDIC-insured pooled bank accounts as agent of PayPal's customers. These funds
belong to our customers and hence are not reÖected in our statement of Ñnancial position. Funds belonging
to our customers that are not invested in FDIC-insured accounts, such as funds in transit to or from the
customer's bank, are shown as a liability on our balance sheet.
VeriÑcation of PayPal's Account Holders
In order for senders to fund payments from their bank accounts, they Ñrst must become veriÑed
PayPal users through our Random Deposit technique. Under this technique, we make two deposits ranging
from 1 to 99 cents to the user's bank account. To verify ownership of the account, the user then enters the
two amounts as a four-digit code at the PayPal website. In addition to allowing funding via bank accounts,
veriÑcation also removes some spending limits on users' accounts and gives them reputational advantages
when transacting with other members of the PayPal community.
Withdrawing Money
Each U.S.-based account holder may withdraw money from his or her PayPal account via an ACH
transfer to his or her bank account or by a mailed check from PayPal. ACH withdrawals may take three
to Ñve business days to arrive in the account holder's bank account, depending on the bank. Mailed checks
may take one to two weeks to arrive and PayPal charges $1.50 per check. Qualifying PayPal business users
also can receive a PayPal ATM/debit card, which provides instant liquidity to their respective PayPal
account balances. ATM/debit card holders can withdraw cash, for a $1.00 fee per transaction, from any
ATM connected to the Cirrus or Maestro networks and can make purchases at any merchant accepting
MasterCard.
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