Well, the Beginning of the End for PayPal, as I see it. I predicted it. It's happening. Oh well! Now can you see why I detest this low-life pond scum operation? -Mike ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PayPal Raises Fees, Looks For New CEO and Profits By STACY FORSTER October 10, 2000 PayPal.com delivered a popular solution to a vexing problem -- how to send and receive money over the Internet. But the bigger challenge for the two-year-old start-up will be to make money in the process. With its sights set on profitability and an initial public offering, PayPal's parent company, closely held X.com, is looking for a new chief executive officer. On Sunday, Elon Musk, the founder and chief executive of X.com (www.x.com), said he is stepping down to allow the company to bring in a leader with more experience. "Elon has had great start-up experience, but he's never run a major public company," says Peter Thiel, chairman of X.com. Mr. Thiel says he expects the company to be profitable by the end of 2001. And in move that may be controversial, PayPal will begin charging some consumers fees on Oct. 16 for a service that used to be free. The company, which had depended largely on interest income on cash in its customers' accounts, plans to charge a fee of 1.9% plus 25 cents per transaction for anyone who receives more than $500 in credit-card payments in a six-month period. Before, only businesses were charged the fee. "They're struggling to come up with the business model," says James VanDyke, an analyst with New York e-commerce research firm Jupiter Communications. PayPal, which launched its service in October 1999, merged with X.com in March. Analysts say the combined company dominates the online person-to-person payment business, boasting nearly four million customers and 300,000 business accounts. Each day, PayPal completes about 130,000 transactions and moves about $6 million. PayPal says it is accepted by more than half the auctions on eBay, compared with only 10% for its closest competitor, Billpoint (www.billpoint.com), a joint venture between eBay Inc. and Wells Fargo & Co. PayPal's registered users can send payments to anyone with an e-mail address by writing a dollar amount on a form at the company Web site. When the e-mail is sent, the payment is charged to the sender's bank or credit-card account. If the receivers aren't registered, they can fill out a form attached to the e-payment to receive the money, which is waiting in a PayPal account in the receiver's name. PayPal has grown rapidly by encouraging users to recommend the service to friends and families, offering a $5 reward for opening an account or referring a new customer. But all that has been costly. "They now need to create a strategy that walks the tightrope between maintaining the critical mass of customers and figuring out a way to make money," says Paul Jamieson, a financial services analyst for e-commerce research firm Gomez Advisors in Lincoln, Mass. And some customers already are angry. Peter Resnik, a financial consultant from Nokomis, Fla., who conducts about 100 auctions a month for antique paper items on eBay, says he feels duped by advertisements promoting PayPal as a free service. He contends those advertisements were aimed at the auction sellers who helped PayPal develop its large customer base. "They led you down the path with the impression that this was a free service and there were no strings attached," Mr. Resnik says. PayPal first began charging fees when it introduced business accounts in June, says X.com spokesman Vincent Sollitto. Mr. Sollitto says they PayPal is implementing the new policy because some people were using the personal accounts for business purposes to avoid fees. Mr. Thiel says the new policy will affect only about 250,000 customers, or 6%, of its customer base of four million. Users were notified about the policy change last week in an e-mail. X.com's competitors vary on their policies for credit-card transactions. Ecount.com (www.ecount.com), PayMe.com (www.payme.com) and PayPlace.com (www.payplace.com) do not charge for credit-card transactions. For transactions of more than $15, Billpoint charges 1.75% plus 35 cents a transaction for business accounts and 2.5% plus 35 cents a transaction for personal accounts. EMoneyMail (www.emoneymail.com), a payment service offered by BankOne Corp., charges customers $1 to send money, but there is no cost to receive funds.