Internet payment PayPal expects favorable FDIC opinion

Posted 8:00AM on Wednesday 13th March 2002 ( 23 years ago )

SAN FRANCISCO - PayPal Inc.'s online payment service is less likely to run into trouble with state banking regulators after receiving a positive opinion from the Federal Deposit Insurance Corp., the company's chief executive said Tuesday. Acting on a request from the Palo Alto-based company, the FDIC issued a letter concluding "PayPal does not physically handle or hold funds." PayPal released the excerpt from federal regulators Tuesday as part of an effort to reassure investors that its rapidly growing payment service is unlikely to be declared an unlicensed bank - a possibility raised last month when Louisiana authorities threatened to temporarily shut down the business in that state. The FDIC's bland statement could help PayPal persuade regulators in Louisiana and several other states, including New York and California, that its online service isn't violating banking laws. "I wouldn't go so far to say that this will resolve all the regulatory issues facing us, but it's a very important milestone," PayPal CEO Peter Thiel told The Associated Press. "I really don't see anyone coming down on us anytime soon." Thiel made his remarks during his first interview since PayPal's successful initial public offering of stock last month. Securities laws governing IPOs prohibited Thiel and other PayPal insiders from talking about the company until Tuesday. Investor worries about PayPal's regulatory battles and a patent infringement lawsuit cast a cloud over the company's closely watched IPO - the first by a consumer-oriented Internet business in more than a year. Despite the concerns, investors embraced PayPal's stock, which sold at an IPO price of $13 per share and gained 55 percent to close at $20.09 on its first day of trading on the Nasdaq Stock Market a little over three weeks ago. PayPal's shares gained 14 cents Tuesday to close at $20 on the Nasdaq. "We are elated that the company has been validated in a way that we would have found hard to believe two years ago," said Thiel, whose personal stake in PayPal is worth $55.5 million. The company's market value of $1.2 billion reflects Wall Street's high expectations for a 2 1/2-year old company that has signed up 14 million accountholders and processed $3.5 billion in online payments last year. PayPal serves as an e-commerce broker, securing payments from an online buyer and then delivering the money to a seller through e-mail. Despite its growth, PayPal remains unprofitable, having lost $283 million since its inception. The company says it would have made $3.2 million during the last three months of last year if not for accounting charges to pay for past acquisitions and stock-based compensation. With its service adding 25,000 new users per day, PayPal is making $30 to $50 on every $100 in additional revenue, Thiel said. He declined to disclose the company's goal for becoming profitable under Generally Accepted Accounting Principles. PayPal is scheduled to report its first-quarter results April 23. Thiel is convinced PayPal won't be hurt by a lawsuit claiming the company's payment service infringes on a patent held by New York-based Certco, which filed the claim just before last month's IPO, forcing its delay by a week. "That was certainly something out of left field," Thiel said of the Certco suit. "We believe it was designed to create maximum disruption and damage. It was an attempt to extort money from the company. It is wholly without merit and we will fight it vigorously." Certco declined to comment Tuesday.

http://accesswdun.com/article/2002/3/197554