Banking Review

PayPal hatches plans

PayPal is looking to grow its market penetration for online payments by engaging developers through a competition and startup incubator scheme

BY ELTON CANE

Despite some teething problems, PayPal has taken its developer community engagement to a new level since the November launch of its PayPal X APIs, which let third-party applications tap the company’s core payment processing system.

In late March at the DEMO conference in Palm Desert, California, it announced the winners of the Developer Challenge it launched at the same time the APIs were released. It also launched the PayPal X Startup Accelerator Program, backed by some prominent Silicon Valley venture capitalists.

The competition was won by Rentalic, a marketplace people can use to rent out anything they own. It walked away with the main prize of US$50,000 in cash and US$50,000 in waived PayPal fees. Appbackr, an application developers can use to sell their iPhone apps to wholesale buyers, who can then resell them, took second place and US$25,000 each in cash and fee exemptions. (See page 4 for details on each).

PayPal’s APIs open up a range of functionality, from mobile checkouts to authentication. Some of the more interesting enhancements to PayPal functionality used by Developer Challenge entrants included:

Mass payment – A payment disbursement solution that lets you send multiple payments in one batch. PayPal claims it’s a fast and convenient way to send commissions, rebates, rewards and general payments.
Chained payments – Send money to one person. They send it to many.
Parallel payments – One payment split between many vendors.
Recurring billing and payments – Automated scheduling for trial and regular payment periods.

Frerk-Malte Feller, managing director of PayPal Australia, says the launch of the APIs has spurred a new strategy for working with third parties.

“We’ve always had some level of developer engagement with developers who were embedding our checkout application, but it was only in one specific area.

“But PayPal is now being used much more broadly and deeper too. We’re now interested not only in developer applications, but also in building businesses.”

One business PayPal is helping to build – through a partnership – is Bump. Bump is a US company founded in 2008 that offers an application for users to exchange information simply by tapping smartphones together. Bump is now integrated in the latest iPhone application from PayPal, launched last month, which includes a number of other upgrades such as easier money requests from contacts and funds transfers.

But the Bump integration potentially will have the biggest impact on user experience. PayPal customers with iPhones can now simply ‘bump’ their phones together to complete a payment. In a public show of the technology, the Developer Challenge winners received their prizes in this way on stage at the DEMO conference, rather than the standard oversized cheque presentation.

As part of its new accelerator program, PayPal is looking to lend its support to a wider number of companies. It says companies in the program will get introductions to venture capitalists, access to a business relationship manager who can connect them with potential partners and to executives in residence (EIRs) for additional advice. Some start-ups will also get access to work from the Plug and Play Tech Center in Sunnyvale, California.

Australian developers
Developers from three Australian companies were invited to attend PayPal’s first developer conference in November. Of those, Steve Cooper from Katmat Creations was inspired to enter the Developer Challenge and is now engaged in the Startup Accelerator Program.

“The best thing about the new APIs is the flexibility, particularly with chain payments – there hasn’t been anything like it before,” he says.

Cooper was inspired by last year’s event to revive an idea he had back in 2008 for a platform that could be used to group together individual purchasers who don’t know each other to combine their orders to qualify for a bulk purchase discount.

The result was GoSqueesh, which uses the new PayPalX APIs to capture a pre-approval upfront and then charge the customer later once the final sale price is finalised based on number of pre-sales.

The final sale price is established by the number of sales using the pricing table on the product.

Once the timer has ended or maximum sales have been processed, the sale will complete and all pre-approvals will be processed by the GoSqueesh engine.

Using chained payments, the payment is then passed along with shipping details on to the seller who will post the items.

GoSqueesh got enough positive feedback and votes in the initial stages of the competition to make it to the first shortlist of 65. But unfortunately it did not make the final 11 of the challenge.

This has not deterred Cooper, however, as he intends to continue developing the application further with support from PayPal’s contacts via the accelerator program.

“We don’t really see the Australian developer community as separate from the global group, and in fact the Australian developers we speak with are more excited about us helping them get exposure to grow outside the Australian market,” says Feller.

Teething problems
While the winners and final 11 were obviously happy with the process throughout and after the competition some developers made complaints about PayPal’s inconsistencies, voting procedures and lack of transparency.

One blogger, Al Sutton of Funky Android, was particularly critical of what he perceived as PayPal “moving the goalposts” to maximise the number of entrants received.

The original deadline for submitting preliminary apps to PayPal for inclusion in the contest was January 17. But after this date had come and gone (and many had submitted applications), the company pushed the deadline back two weeks to January 31, citing an unexpected level of developer interest. The company also moved the deadline for submitting finalised apps and short videos describing and promoting them. This, in turn, meant a delay in opening up a list of apps for voting.

After voting began, Funky Android pointed out that a number of applications, including Rentalic, which eventually won, did not meet the deadline for having a video demonstrating live use of the application. In addition, other issues he identified were that PayPal admitted that incentivised voting was going on by some entrants, that PayPal wasn’t clear about whether votes had to have a PayPal X developer account or if ‘guest’ votes were possible and poor navigation to the voting pages on x.com.

“The only reason for this we could think of was that PayPal wanted to increase the number of entrants, and the only way they could do this was to help developers who would have been excluded from the competition if they had enforced the rules,” he wrote.

PayPal reacted by saying they had taken all the feedback into account, and that delays were caused by a larger than expected number of entrants, which required processing. It stood by the results of the community voting stage and the final judging panel’s decisions.

Local trend in applications
Feller says the competition was not just a one-off effort to engage with developers and that PayPal will be continuing to improve its processes. As a result, he says the company expects to be working with an even larger number of third-party developers in 12 months time.

“One likely trend in applications is there will be more tapping into the power of the cloud to efficiently target smaller markets that may not have been economically viable previously,” he says. “This enables innovation on a smaller scale with smaller set up costs.

We hope to see a couple of hundred applications targeted locally, not just Australia-wide for example, but serving local neighbourhood or community needs.”

But PayPal’s APIs are not just open to small third-party developers. As reported in Online Banking Review in November, the PayPal APIs are also being used by some large vendors and outsourced service providers to banks.

In the US, Fidelity Information Services got early access to these, as did S1, which has used them to develop a payments service for mobile phones.

There has been some speculation that banks might also find PayPal’s APIs appealing as a shortcut to introducing particular payment functionality. And Feller admits that PayPal Australia has been talking to banks here about integrating particular PayPal functionality into their online banking.

“We are talking to banks about integrating PayPal with their online banking, and not just for P2P,” he says. “We think it would increase the attractiveness and usefulness of the online banking sites, as well as being good for PayPal.”

Out of 650 submissions to the PayPal Developer X competition, a shortlist of 11 emerged via community voting. The first and second-place winners were chosen by a panel of distinguished judges, including Pierre Omidyar, founder and chairman of eBay; PayPal president Scott Thompson; Marc Andreessen, eBay board member and general partner of Andreessen/Horowitz; Scott Cook, eBay board member and co-founder of Intuit; and Sequoia Capital’s Roelof Botha.

AND the winner is…..
Rentalic is an online person-to-person marketplace for owners to rent anything that they own, from vacation properties to camping equipment. Rentalic uses PayPal’s preapproval API to validate that a customer has sufficient funds for a rental fee and deposit in a PayPal account before making a reservation.

Once an item is reserved, Rentalic provides the borrower with a unique security code. The security code is used by the two parties to authenticate the transaction. A transaction will not initiate until both parties agree to the terms and the conditions of the rental and
validate the security code.

The security code can be instantly validated via Rentalic’s Web site or Interactive Voice Response (IVR) phone system (“Rentalic-mobile borrower verification and payment processing platform”).

After the borrower returns the item or property back to the owner, the owner can provide feedback on the Rentalic site and fully or partially refund the deposit with the click of a button. Rentalic automatically takes a percentage of each rental.

Second place
Appbackr is the first wholesale digital marketplace for iPhone applications.

Developers can pre-sell units of their iPhone applications to wholesale buyers and value added marketers before the apps appear in the iTunes App Store. Built on the PayPal X platform and using the parallel payments and preapproval APIs, developers get paid immediately for their app and the ‘appbackrs’ earn a profit when the units sell on the iTunes Store.