Good afternoon, Mr. Chairman, and members of the committee.
My name is Darrell MacMullin. I'm the Managing Director of PayPal in Canada. I'd like to thank you all for the opportunity for PayPal to be here. I'd be happy to answer any questions during the question and answer period as well.
I have personally worked in the e-commerce industry in Canada nearly since its inception, in the early days launching retailers like Chapters and Chapters online. I also helped bring eBay into Canada. About six years ago, I built up the Canadian operation for PayPal as well. I've seen the evolution of PayPal and the evolution of the marketplace into e-commerce over many years. It's intriguing to see where the industry is going and some of the things we can do as an industry to make it excel further.
From our perspective, PayPal is actually growing now at about three times the rate of e-commerce in this market, and it has been for several years. Being part of PayPal, I'm excited about that, but I don't know what that necessarily says about the state of e-commerce in this market. There is some “static-ness”, but we believe we're helping the industry grow in a lot of ways. We're helping merchants build e-commerce businesses very cost-effectively and to compete internationally. We're bringing a lot of consumer confidence to the table. But there's a lot more the overall industry can be doing as well.
First and foremost, one of the most important things is consumer confidence. This actually hasn't changed a lot over time. The whole issue encompassing privacy concerns and security is still one the biggest issues why people don't transact online.
From a merchant adoption standpoint, although we are seeing more merchants building a website presence, they have still found it very cost-prohibitive or not cost-effective to actually make transactions online.
Finally, one of our strengths that we don't leverage enough is actually Canadian innovation. From a developer's standpoint and a technology standpoint, this market is actually very ripe in terms of young entrepreneurs, universities, and people who are able to build out and leverage a lot of the new technologies. But as an industry, we haven't been able to connect them to commerce as effectively as we could.
Here I'd like to talk about PayPal in general and what we actually do. Sometimes it's confusing as to whom PayPal actually is and what we do. Probably the best way to describe PayPal is as the payments provider that sits on top of a lot of the other payment networks. If you think of the Internet, you think of a very open network that's global in scale. In you think of payments in general, they're typically closed and domestic in nature. Those two worlds often don't mesh well together in a lot of ways, and we've seen that cause a lot of issues over time, whether with domestic markets, new technologies, building out payments infrastructure, or cross-border buying and cross-border selling. Probably the best way to describe PayPal is that it's like a universal adaptor that bridges these two worlds. We enable and take a lot of the friction out of the process for both merchants and consumers to transact effectively online.
One of the reasons why we do that, from a consumer's standpoint, is that the core of our offering is what we call the PayPal account. A lot of people consider it to be the original digital wallet for the Internet. There's a lot of talk about digital wallets these days in the industry, and later on we can get into where we think the industry is going. But generally how the PayPal account works today is via a very simple process for someone to sign up for an account. It's free for any consumer to set up a PayPal account. You can enter and store your billing and shipping information. You can add credit cards, bank accounts, and maintain a cash balance in multiple currencies. It adds a lot of basic utility for you to be able to transact online very effectively. Most importantly, it delivers a much more seamless customer experience. You're not having to pull out your financial information every time you're transacting, or every time you're re-entering information for your credit card, billing, and shipping—all of those pieces where we've seen tons of data that slow down the e-commerce process and has people drop off in the conversion process.
The key component of what PayPal provides is that when a consumer makes a transaction with PayPal, they can use their existing credit card, bank account, or cash balance without any of their financial information ever being shared as part of that transaction. That's probably one of the primary reasons why consumers love using our service. No matter whom they are transacting with—a larger retailer, or a small site they've never done business with, domestically or internationally—they know that their credit card information is never shared with that merchant, and they don't know where that information is being stored if they're just entering it somewhere else. The flip side of that as well, as to why merchants love PayPal, is they don't have to worry about collecting and storing credit card information.
We know that dealing with PCI compliance has been very problematic for a lot of merchants. It's an additional cost and barrier to doing e-commerce. From PayPal's perspective, we take the merchants completely out of the scope of that whole process. They never have to deal with PCI compliance to begin with, because they never get that financial information.
Along with that, we've essentially created a very closed-loop network for merchants and consumers to be able to transact safely, and a lot more seamlessly in how their information is shared. It also allows us to monitor those transactions a lot more effectively from a fraud management standpoint. We know a lot about the buyer and the seller as part of that closed-loop network. It doesn't matter where the buyer and seller are located or what type of financial instrument they are using, we can monitor those transactions far differently compared to conventional credit card payments online.
The result is that the fraud rate through PayPal is significantly lower than any other payment network. It's less than half the overall industry average. We're protecting consumers and merchants at the same time, while delivering better buyer and seller experiences.
As we move forward this whole notion of e-commerce has historically been perceived as another channel to do business. But the way e-commerce is going, it's not about being online and offline and it's not about e-commerce. The mobile phone is certainly coming along and morphing those worlds together. In PayPal's perspective, the notion of one versus the other is going away very quickly. We embrace the idea of the convergence of the two worlds.
There are some interesting roles that PayPal can play to enable commerce to happen for merchants, whether they are looking to transact through mobile phones, tablets, televisions, or in-store with their mobile phones. There is one seamless experience and there's one wallet that can essentially deliver a lot of utility, regardless of how they are interacting.
We don't believe that taking credit card credentials and simply stuffing them on a phone is the way to transform that experience to the next level. PayPal has been very focused on actually taking PayPal credentials and making them available in the cloud. That allows people to be able to access their PayPal credentials from any device, any time, and in any way. Whether they are using a tablet, a mobile phone in a store, their card, or their Xbox gaming system, they are accessing their PayPal account at any time to make transactions at any time. Their financial information is never stored, shared, or transmitted across any of these networks.