PayPal Denies Adaptive Payments API Is a Ploy to ‘Crush’ Amazon FPS

PayPal Inc. is planning to launch a flexible-payments application programming interface that will allow merchants and others to build their own payment systems, but the company denies that the Adaptive Payments API is a response to Amazon.com Inc.’s Flexible Payments Service, which has been available as a commercial product for only five months. A draft of PayPal’s Adaptive Payments API was leaked on Monday by technology blog Techcrunch.com, which reported that Adaptive Payments has similar functionality to Amazon’s FPS. But Osama Bedier, PayPal’s vice president of platform and emerging technology, said the API “is not an effort to crush Amazon’s fledgling payment service.” In a statement released on Tuesday, Bedier said that Adaptive Payments is designed “to unleash developer innovation which we believe has been stifled because it’s so hard to make money with what’s currently available to developers today.” PayPal plans to announce details of Adaptive Payments at a previously scheduled event on July 23, with more information available at a conference scheduled for November. Like Amazon’s FPS, PayPal’s Adaptive Payment API will allow merchants and others to quickly integrate payment processing into their Web sites or applications. Adaptive Payments sets up a mechanism for exchanging payments between a sender and one or more receivers of the payment, according to the June 12 draft published by Techcrunch.com. Application owners can include merchants that run Web sites, owners of widgets on social-networking sites, or providers of payments applications for cell phones. Payment senders and receivers all must have PayPal accounts and application owners must have PayPal business accounts. The API offers three categories of payment: single payments, parallel payments, and chained payments. The single-payment application enables a sender to send a single payment to a single receiver. For example, a Web site could implement a customized checkout flow to transfer money from a customer’s PayPal account to the merchant’s account. Parallel payment allows a sender to send a single payment to multiple receivers, for example, a shopping cart that enables a buyer to pay for items from several merchants with one payment. The shopping cart would allocate the payment to the merchants that provided the items. PayPal deducts the money from the customer’s account and deposits it in the receivers’ accounts. Chained payments allow a sender to send a single payment to a primary receiver, who keeps part of the payment and pays other, secondary receivers with the remainder. One such example would be a travel agency that handles bookings for airfare, hotel reservations, and car rentals. The customer pays the travel agency, which allocates the payment for commission and the actual cost of services provided by the other receivers. PayPal deducts money from the sender’s account and deposits it in the appropriate accounts. A chained payment may have up to five secondary receivers. Developers can set up payment transactions so that either the sender or receiver of the payment pays the fee. If receivers pay the fee, the developer can specify whether the primary receiver in the chained payment pays the entire fee or whether all receivers pay a portion of the fee, according to the draft document. Fees—which were not disclosed—will be determined by PayPal based on criteria such as transaction volume. The Adaptive Payments API also enables merchants and others to set up preapprovals for payments and make payments on behalf of PayPal account holders. The API also can be used to manage refunds. While PayPal denies that Adaptive Payments is a response to Amazon’s FPS, Javelin Strategy and Research Inc. senior analyst Bruce Cundiff says it is part of the ongoing competition between eBay Inc., PayPal’s parent company, and Amazon. Both companies have made it clear that they want to become platforms for more formal e-commerce, rather than just an online merchant [Amazon] and a “place for individuals to sell something [eBay],” he says. “That doesn’t mean everything that Amazon does in terms of payments is obsessively focused on PayPal or vice versa,” Cundiff says. “But certainly you’re going to have some competitive reaction to what Amazon is doing to make it potentially easier for a payments aggregator or an ecosystems player to play in the Amazon marketplace as compared to the eBay marketplace.” The commercial version of Amazon’s FPS, launched in February (Digital Transactions News, Feb. 5), is intended for merchants that want to build their own payments system. It includes features aimed at easing adoption, including so-called Quick Start programming that allows developers to more quickly integrate the payments program into their Web sites. The commercial service also features a micropayments capability that aggregates transactions but allows merchants track discrete payments. (Via Digital Transactions)