PayPal Adaptive Accounts

by Russ Jones on November 4, 2009

in ECommerce, Ecommerce Payments, PayPal, Russ Jones

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I’m attending the PayPal Developers Conference this week and want to share some initial impressions about the Paypal platform and what it might mean in the world of payments.

First off, the combined weight of the new products, partner demonstrations, and new applications is almost overwhelming. There’s a lot here competing for our collective attention.

Do we start with the rollout of the “adaptive” platform, or the new 2010 pricing model? Should we focus on PayPal’s push into B2B payments with SAP as a launch partner? Or do we drill down into third-party reward-to-cash redemption through PayPal? And what about the partnership with FIS that potentially enables PayPal as a P2P payment network for over 14,000 financial institutions around the world?

For my money, the real story is the introduction of Adaptive Accounts. I believe it’s important, and along with Adaptive Payments, a foundational building block for many application developers, in both traditional and new payment segments. Adaptive Accounts, in short, gives third parties applications and websites the ability to open and manipulate PayPal accounts on behalf of their customers. Don’t have a PayPal account, let me open one for you!

The poster-child launch partner was a new startup called FundRazr that does social group fund raising. As part of setting up an account with FundRazr, you have to register with all the usual name, contact information, profile data, etc. FundRazr is going to use PayPal to payout any funds that are raised. If the group already has a PayPal account, they just use it. If they don’t have an account yet, FundRazr can just open the PayPal account, on demand, based on the account information the group already provided. Call it frictionless commerce or greasing the skids — it sure makes customer onboarding slippery.

Adaptive Accounts offers developers a lot of flexibility. Third party applications can open PayPal accounts one at a time or open them in bulk. If a bank were to use PayPal Adaptive Accounts, it could also link their payment instruments to the PayPal account as funding sources. With the right privileges, applications can also update account attributes.

PayPal talked about a lot about anticipated use cases. A marketplace could open accounts for seller payout and fee collection. A social media site could open PayPal accounts to payout royalties to premium content providers.

In the more traditional payment markets, a small business could open PayPal accounts for their employees, presumedly enabled by a payroll application built on top of the PayPal Adaptive Platform. A B2B payment enabler could offer real-time payment of supplier invoices via PayPal. Don’t have a PayPal business account? They can open one in a couple of screens and have payment in the suppliers hands in a just a few minutes. Potential uses are constrained only by imagination.

Mechanically, when the third party application or website opens a PayPal account, they can set up everything needed except PayPal login credentials. Users are redirected to PayPal to establish their password, and agree to terms of use, before being returned back into the original application. Personal accounts can be created on demand by any vetted PayPal application. Business account creation, as well as linking funding sources and changing attributes require “advanced” authorization credentials from PayPal.

Of course, the devil is in the details. Developers will have to follow PayPal best practices to handle PayPal accounts that already exist, accounts that are never “claimed”, and other exceptions. But I was impressed that both PayPal and the developer community are already focused on the edge cases.

PayPal indicated that Adaptive Accounts is in beta now with support for 13 countries. It’s being rolled out on a country-by-country basis to meet local data collection and privacy requirements. To me, the key point here is not that it is only available in 13 countries — it’s that on day one it’s available to open accounts in more than one country.

If Adaptive Payments is the first shoe to fall, Adaptive Accounts is the other shoe. This is an intriguing new capability that I believe is going to open up lots of new uses for PayPal and potentially push the company into new verticals and markets previously unavailable. I can’t wait to see what other new services PayPal offers on its Adaptive Platform.

4 Responses to “PayPal Adaptive Accounts”

  1. Paypal can promote and quote their positives better than I can, so I resign to my top 3 concerns about this.

    #1) Greed and fraud – easier cash transfer increases the ability for fraud by bad people. This could hamper Paypal because there will be attempt to use applications to con monies in new fashions.

    #2) Regulation – America has just been through (and is still going through) a very bad time with bank corruption. Regulation of money institutions are going to be a concern. While Pp has flown under the radar, too much exposure could wake up the sleeping GIANT of government regulation.

    #3) Baggage – Contrary to what Paypal may feel or think…they are NOT a new brand. This brand of Paypal has a LOT of baggage. I do not think one person on the web (with a Paypal account) has not received at least ONE fake Paypal email?!? With that comes some natural push back for this plan of world domination. Some people just don’t trust the company and possibly never will.

    So that is my 2 cents…I did not charge, so you can not get your money back 🙂

    John (ColderICE)

  2. Dan Stiel says:

    This offers a seamless method for legitimate merchants to provide payment convenience. The big question for us is at what cost to the merchant.

    • Russ Jones says:

      Dan, it doesn’t cost anything to use the Account Open API. PayPal will make its money from the normal transaction fees for moving money into and out of the account. No different than if the user had manually set up the account themselves. Of course, you’ve have the development cost to implement the functionality.

  3. Srinivas Vadhri says:

    thanks Russ for chiming in, and ofcourse a great article!!

    dan, I am the Product Manager for Adaptive Accounts. To extend Russ’s comment, at this moment there are no fees for using the create account API.

    Our goal is to help developers, merchants etc to increase their conversion and provide PayPal Account holders better user experience.

    Please do not hesitate to contact me or anyone on on any PayPal X APIs

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