Under the terms of the agreements, PayPal will acquire VeriSign's payment gateway business for US$370 million in cash and/or eBay stock and combine it with PayPal's merchant services platform. VeriSign will also provide eBay and PayPal with a suite of security services that includes the deployment of two-factor authentication, a security system that gives customers a one-time password or digital certificate to help protect against online identity theft.
With the acquisition of VeriSign's payment gateway, which processed more than $40 billion in total payment volume in 2004, PayPal plans to accelerate its merchant services business by expanding its customer base to tens of thousands of new small and medium-sized business customers online. The payment gateway is a real-time, scalable internet payment platform that allows merchants to authorise, process and manage online payments. The combination of VeriSign's payments gateway with PayPal's existing services will provide merchants with multiple processing choices from a single provider, including VeriSign's gateway, PayPal's Website Payments Standard, Express Checkout or Website Payments Pro.
Additionally, eBay and VeriSign have signed a multi-year security technology agreement that calls for eBay to invest in the deployment of VeriSign technologies that enable and protect online transactions, including the purchase of up to one million two-factor authentication tokens. eBay and PayPal plan to begin the rollout of two-factor authentication to customers in 2006, including marketing and security programs designed to promote customer adoption.
'VeriSign's payment gateway is a popular and market-proven product that perfectly complements PayPal's existing payment services,' said Jeff Jordan, president of PayPal. 'We're very excited about the opportunity to extend the benefits of PayPal's services to the VeriSign customer base. This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly.'
'At eBay, we're always looking for additional tools and technologies to improve the security of our community's accounts and ensure the privacy of information. Two-factor authentication will be another important way customers can shop safely on eBay and pay with PayPal,' said Rob Chesnut, senior vice president of trust and safety for eBay. 'We're thrilled to be working with VeriSign, and are proud to be one of the first e-commerce companies to give our customers access to two-factor authentication.'
'The alliance between VeriSign and eBay brings together two leaders in online commerce. eBay's deployment of two-factor authentication will represent one of the largest consumer authentication deployments in the industry,' said Stratton Sclavos, chairman and chief executive officer, VeriSign. 'After the asset sale of our payment gateway business, VeriSign will continue to focus on our core mission of enabling and protecting all forms of digital interactions. In addition, the acquisition provides our worldwide merchant base with the benefits of PayPal's already robust payment capabilities.'
Including synergies with PayPal's merchant services business, the payment gateway business is expected to generate an incremental $100 million of revenue at a 20% operating margin in 2006.
The acquisition is expected to be finalised in the fourth quarter of 2005.