PayPal Taps Wells Fargo To Process Credit Cards

PayPal has announced it will shift its credit card processing to Wells Fargo (NYSE: WFC), making the financial giant the third company in the past year to handle PayPal's credit card transactions.

The move may help PayPal strengthen its ties to credit card companies, which have been somewhat rocky in the past. In fact, PayPal said recently that it risked losing MasterCard customers because of a new fee arrangement.

"Wells Fargo is in a position to help PayPal's service with its payment processing expertise, its relationships with the credit card associations and its customer care experience," said Debra Rossi, a Wells Fargo vice president.

Wells Fargo also will handle automatic deductions from checking accounts, another option that PayPal users have for funding their online accounts.

Shoring It Up

PayPal officials declined to comment on the deal , citing a U.S. Securities and Exchange Commission-mandated quiet period following the company's recently announced secondary stock offering.

"Credit card processing has been an issue in the past with PayPal," Morningstar.com analyst George Nichols told the E-Commerce Times. "By its nature, PayPal has complicated working relationships to maintain."

Strange Bedfellows

Ironically, the deal further entwines PayPal and eBay (Nasdaq: EBAY), which compete directly for the business of eBay buyers and sellers. EBay's Billpoint system was at one time jointly owned by eBay and Wells Fargo. That arrangement ended earlier this year when eBay paid US$43.5 million to buy the 35 percent of Billpoint that Wells Fargo owned.

Wells Fargo still handles back-room processing for Billpoint, however, and now will conduct those transactions alongside PayPal's.

PayPal and eBay's tense coexistence will be on display next week when eBay hosts eBay Live, billed as a community gathering of eBay members. PayPal recently sent e-mail to its members urging them to attend a PayPal reception and wear the company's T-shirts at the eBay get-together.

Shipping News

PayPal also announced this week that it will partner with UPS to provide shipping and payment solutions for Internet buyers and sellers. As a result, users will be able to receive shipping information along with PayPal payments and have shipping charges rolled into payments made for products.

PayPal shares, which have been a beacon of light for the dot-com sector since the company's late-February IPO, have been beaten down recently on news that insiders plan to sell up to 6 million additional shares. The stock was trading at $20.35 early Thursday, up slightly on the day but well below the $30 high reached in May.