eBay Bringing PayPal to the Israeli Market

Internet trackers say eBay made the decision after seeing the extent of transactions based in Israel.

Internet auctions giant eBay is reaching into the Israeli market. According to information obtained by TheMarker, within a few weeks the company is to announce the launch of a local branch of PayPal, the electronic payment and fund transfer company, and eBay subsidiary.

PayPal provides a secure method for transfering payments between online buyers and sellers, without the need for either party to reveal their credit card or bank account information.

PayPal was founded in 1998 and acquired by eBay in 2002. It has two main areas of operation: between buyers and sellers on the online auction site, and between buyers and operators of online stores. These include the Internet outlets of bricks-and-mortar retailers and popular brands that include GUESS, Ralph Lauren, Calvin Klein, Walmart, Dell and HP, but the lion's share of PayPal's business comes from online-only stores.

PayPal's profits come from the sellers: the company charges an average commission of 2.5% on every transaction.

Millions of such online stores are registered with PayPal, and the company is hoping online Israeli retailers will join the list.

The establishment of PayPal in Israel will allow Israeli users to withdraw shekels from their PayPal accounts through their Israeli bank accounts, obviating the need to open bank accounts in the United States. This will make eBay much more attractive to Israeli buyers and sellers, while bringing international buyers closer to Israeli online stores and enabling Israelis to buy from stores around the world without exposing their credit card details.

Oded Zahavi, who is wrapping up his position as Vice President of International Business Development at Leumi Card, will be in charge of PayPal operations in Israel as well as the company's new venture in South Africa.

"The Israeli market is very important to us and we are constantly searching for ways to expand our online payment operations in growing markets," a spokeswoman for eBay's communications division, which is responsible for PayPal activities, said. However, company officials declined to specify the date of the local launch or other details.

Israeli Internet trackers believe eBay made the decision to expand into the local market after seeing the extent of eBay transactions based in Israel.

The online auction company launched a Hebrew Web site a few months ago, www.ebay.co.il, but has done little in the way of promotion or advertising. The site offers help screens in Hebrew, emphasizes brands that Israelis like and provides all prices in shekels. It's a safe bet that with the launch of PayPal here, eBay will put more into developing its Hebrew site.

This isn't eBay's first Israeli adventure. In January 2008, eBay bought Israeli startup Fraud Sciences for $169 million. The company is now PayPal's development arm in the area of risk management.

Fraud Sciences does not have anything to do with sales and marketing in Israel. PayPal's new Israeli branch will be headquartered in the same building as Fraud Sciences, but they will report to different managers in the parent company's offices in San Jose, California.

In 2005, eBay bought the technology of the Israeli Internet price comparison company, shopping.com, for $620 million in cash.

PayPal has branches in 190 countries worldwide and Web sites in 18 different languages. In many of the countries in which it operates, there are restrictions on transferring money directly to the account owner, among others. The company hopes to be able to remove most of the restrictions on Israeli accounts by opening the branch in Israel.

There are 184 million PayPal accounts, 73 million of them which are active (accounts with at least one transaction made in the previous 12 months).

eBay's revenues from PayPal transactions amounted to $643 million in the first half of 2009, representing an 11% increase from the parallel quarter in 2008.

Currently, credit cards are the only means of carrying out transactions on the Internet. PayPal's first task in Israel is likely to be persuading online businesses to sign up with the company.

Last week Walla! announced the closure of its eBay and PayPal clones, Buy and Pay, due to their failure as businesses. The popular Internet portal launched these services in 2006 at a cost of around NIS 2 million. Company officials then spoke about an annual turnover of NIS 300 million within three years. They are currently concentrating on Walla! Shops, the online store for new products, which is turning a profit.

Despite the timing, there is apparently no connection between the closure of Buy and Pay and the expected announcement of PayPal's entry into the local market, but Walla! is likely to seek out PayPal in hopes of partnering with the company.