PayPal granted banking license in Europe

Online payment service will market services directly to merchants, move European headquarters to Luxembourg

PayPal expects to accelerate the adoption of its online payment services in Europe now that it has obtained a banking license that will give it more freedom to market its services to merchants throughout the Continent.

The license, granted by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, kicks in July 2. As a result of obtaining the license, PayPal will move its European headquarters to Luxembourg from the United Kingdom, a PayPal spokeswoman said Tuesday.

Until now, PayPal has operated in Europe as an electronic money issuer, which prevented it from selling its services directly to merchants in individual countries due to regulatory restrictions. Instead, it has had to conduct its European sales efforts in cross-border fashion from the United Kingdom, she said.

PayPal's announcement comes about a month after rival Google launched the competing service Google Checkout for merchants in the United Kingdom and announced its intention to continue rolling it out to merchants in other countries. Previously, it had only been available to U.S. merchants. Launched in June 2006, Google Checkout is seen as a viable competitor for PayPal, which was founded in 1998 and acquired by eBay in 2002.

The new license notwithstanding, PayPal has no plans to offer traditional banking services in Europe, but intends to simply take advantage of its new status to become more aggressive in its direct sales operations, she said.

Despite what it considers a successful run in Europe so far, PayPal sees a big growth opportunity as demand for online payment services increases in the European Union, she said. PayPal began operating in Europe in 2004 and has about 35 million accounts and 100,000 Web sites there, she said.

PayPal, based in San Jose, Calif., doesn't have a banking license in the United States, where it instead operates as a licensed money transmitter on a state-by-state basis, she said.

(Jeremy Kirk in London contributed to this report.)

Copyright © 2007 IDG Communications, Inc.