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Jack R. Selby, Senior Vice President, Corporate and Internationa Jack R. Selby, Senior Vice President, Corporate and International Development l Development
jack@ jack@paypal paypal.com .com
Consult Consult Hyperion Hyperion Digital Money Forum Digital Money Forum
April 10 April 10
th th
, 2002 London, UK , 2002 London, UK
The Evolution of a New Way to Pay The Evolution of a New Way to Pay
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What is PayPal?
An account-based network which integrates with traditional payment systems
The first global real-time payment system available in 39 countries
Focus on the underserved small business market, including online auctions
Revenue derived primarily from Gross Merchant Sales (GMS)
High variable revenue and low variable expense business model
User-driven growth creates minimum reliance on traditional sales and
marketing expenses
Network effects which build on a large installed base 15 million accounts
PayPal enables any business or consumer with email to send and receive
online payments securely, conveniently and cost-effectively
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PayPal is Ready to Take the Next Step
Cash-flow and EBITDA profitable in Q4 2001
50% gross margins
$40 million in revenue for Q4 2001, $105 million for YR 2001
$3.5 billion payment volume for YR 2001
219% GMS growth from Q4 2000 to Q4 2001
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How Does PayPal Work?
Email Payments
! Consumer signs up and
enters credit card or
bank account
information
! Consumer enters email
address of Merchant and
dollar amount of
payment
Youve got money!
! Merchant receives an
email indicating that
Consumer has sent money
! Merchant may withdraw
the cash, leave it in his
PayPal account or send it
to someone else
Web Accept Payments
! Consumer, not yet a
PayPal user, visits
the website of
Merchant, and
selects goods or
services to purchase
! From a pop-up
window, Consumer
opens a PayPal account
and makes credit-card
funded payment on one
easy form
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How Does PayPal Work?
Account-based payment system
Average transaction revenue =3.3%
Small business e-commerce Online auctions
Cross-border payments Online payments for offline services
Subscription services Person-to-person payments
Withdrawal
Bank account transfer
ATM/debit card
Check
Shop Anywhere
Funding
Bank account transfer
PayPal Balance
Credit card
Average funding cost =1.3%
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The Payments Market Landscape
Underserved Small Business Market Results in Attractive Margins
Long-term relationships
Utilities
Landlords
Doctors
Large merchants
Safeway
Amazon
Friend-to-friend Person-to-person
Risk of transaction / Need for immediacy of payment
S
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Small businesses / Auctions
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Value Proposition to Small Businesses
Ease of registration
Online transaction capability
International transaction functionality
Seamless integration into multiple financial systems
Security and fraud protection
Account management
Immediate access to funds
No other payment method matches PayPals level of convenience
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Merchant account PayPal Master merchant
Value Proposition to Small Businesses
PayPal is the most cost-effective payment method for small businesses
Monthly gross income
0%
5%
10%
15%
20%
25%
30%
35%
40%
$
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Average Cost to Process a $50 Payment
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Strong Gross Merchant Sales Growth
June 10, 2000: Launch
of Premier and
Business Accounts
October 1, 2000:
User free limits
and CC fees
implemented
December 6, 2000:
Increased CC
receiving charges
April 19, 2001:
Increased non-CC
funding charges
July 14, 2001:
Increased low-volume
user charges
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Expanding Transaction Margins
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
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Blended transaction revenue rate Blended transaction expense rate Blended transaction expense + loss rate
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Leading Payment Provider for Online Auctions
PayPals eBay Penetration
%

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P
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P
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1 2000 Q2 2000 Q3 2000 Q4 2000 Q1 2001 Q2 2001 Q3 2001 Q4 2001
71% as of Q4 01
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Growing International Presence
$100
Total intl funds-in Total intl funds-out Total intl customers
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0
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$10
$20
$30
$40
$50
$60
$70
$80
$90
Q3 2000 Q4 2000 Q1 2001 Q2 2001 Q3 2001
0
100
200
300
400
500
600
700
800
900
1,000
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Two-Tiered Marketing Strategy
PULL-DRIVEN ACCOUNT OPENINGS
Customer wishes to purchase product from Merchant
Merchant only accepts PayPal
Customer must open PayPal account to buy product
PUSH-DRIVEN ACCOUNT OPENINGS
User emails money to Person or Business
Recipient must open PayPal account in order
to access money
Web
Accept
Web
Accept
Email-
Based
Email-
Based
B B
P P
P P
P P
P P
P P
P P
B B
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Strong Network Effects
0
2
4
6
8
10
12
14
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Total business/premier accounts Total personal accounts
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Fraud Loss as a Percentage of Payment Volume
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
Q3 2000 Q4 2000 Q1 2001 Q2 2001 Q3 2001 Q4 2001
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Financial Information - Quarterly
10.6 M
($1.2M)
$30.2 M
$815 M
Q3 2001
$3.2 M ($7.2M) ($10.7M) ($24.4 M) Net Income*
12.8 M 8.8 M 7.2 M 5.5 M Customers
$8.8 M
$336 M
Q4 2000 Q4 2001 Q2 2001 Q1 2001 Key Driver
$40.4 M $19.9 M $14.3 M Revenue
$1071 M $663 M $547 M Gross Merchant Sales
*Excluding Cheap Stock and Goodwill Amortization
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J ack R. Selby J ack R. Selby
Senior Vice President, Corporate Development Senior Vice President, Corporate Development
PayPal PayPal, I nc. , I nc.
1840 Embarcadero 1840 Embarcadero
Palo Alto, CA 94303 Palo Alto, CA 94303
650.251.1289 650.251.1289
jack@ jack@paypal paypal.com .com

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