Online and Offline Unite in Credit Card Deal

Providian Financial Corp., one of the largest bankcard issuers in the U.S., has taken an equity stake in Internet payment services provider PayPal in a bid to boost both firms' online and offline offerings, the companies announced Tuesday.

As part of the deal , Providian will offer the Web payment firm's members a co-branded credit card, which is scheduled for a spring roll-out and will be the preferred payment method for all PayPal transactions.

Although the card will also be accepted by other Web-based and traditional merchants, the companies said it will allow members to receive "unique benefits and services" when the card is used with the PayPal service.

In addition, Providian will be able to license PayPal's technology, which allows users to transfer money by e-mail, for private label person-to-person payments for its own customer base.

Expansion Plans

Providian executives said the alliance is a key facet of its global e-commerce and co-branding expansion plans. Meanwhile, PayPal said that landing a major banking partner would let it continue to grow its business while providing expertise in granting and managing credit.

"The co-branded credit card and possible private offering of the service are just two examples of the synergies these two financial companies can realize to the benefit of our customers," said PayPal chairman and co-founder Peter Thiel.

By teaming with PayPal, Providian is also hoping to tap one of the fastest growing financial services on the Web. Having garnered approximately 6 million customers since its launch 14 months ago, PayPal currently processes approximately 150,000 transactions a day.

Growing Pains

Despite these numbers, PayPal has had its share of growing pains.

Two weeks ago, the Palo Alto, California-based company was slapped with an unsatisfactory rating by the Silicon Valley Better Business Bureau, as a result of a pattern of complaints alleging that accounts were opened without consumers' consent and by third parties.

Other complaints received by the BBB about the company include claims that PayPal is too slow to respond to customer problems.

According to the BBB and PayPal, however, the online payment firm is making efforts to improve its customer service and could win back its satisfactory rating if the BBB determines it has made necessary improvements.