PayPal may be in trouble......

FYI

MasterCard to stop third-party transactions
Fri Apr 19, 6:29 AM ET
Andrew Backover USA TODAY
A new rule by MasterCard could crimp online commerce by stopping merchants from taking credit card payments via third parties, such as popular PayPal, USA TODAY has learned. On May 1, unless new terms are reached, Internet merchants that rely on third-party billing, most often small merchants, could miss out on sales via the USA's No. 2 online credit card. And MasterCard holders could have a harder time using their cards at many sites, including auction sites, that use PayPal and similar services, says Gartner analyst Avivah Litan. ''The promise of the Internet was that anyone could set up shop and get paid,'' she says.
''It's not a level playing field anymore if this rule goes through.'' According to MasterCard, its 15,000 card issuers won't be allowed to process credit card transactions using third-party services. Such services are most often used by small merchants because they can't afford to take credit cards. PayPal is the biggest third-party service, with about 13 million registered users. It does 240,000 transactions a day worth about $13 million -- about half of which is done via credit cards. Sellers on auction sites such as eBay and Yahoo may use PayPal to process transactions. Earlier this year, PayPal was used for about 28% of eBay transactions, Litan said. The change would not, MasterCard says, affect people who occasionally use third-party services to sell goods online -- only entities who sell goods or services ''on an ongoing basis,'' according to a MasterCard memo. The change would require those merchants to set up deals with banks so they could take MasterCard directly.
Even if the change is made, consumers could still use their MasterCards to buy goods from Web sites that deal directly with MasterCard. The reason for the change, says MasterCard spokesman Alex Lau, is to protect financial institutions and cardholders from fraud and identity theft. The change is likely aimed at porn and gaming sites that have higher occurrences of theft, Litan says. PayPal is working hard to get exempted from the change. It became the first company to
offer a viable alternative to credit cards on the Net by approaching eBay merchants who previously had to wait for checks to clear before sending out merchandise. PayPal signed the merchants up with fewer hassles and charged lower fees than banks. It uses its agreements with banks to process credit card payments for them. PayPal has been one of few Internet initial public offerings of late. Its shares closed Thursday at $24.46.
PayPal spokesman Vince Sollitto says PayPal is ''hopeful and confident'' it will come to new terms with MasterCard. Visa still accepts PayPal, as does American Express.

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