Over the past year, PayPal has gradually been adding more structure to its developer program, as it has begun adding formal certifications plus the beginnings of vertical sector outreach.  Although of course, PayPal is there to support the business of its parent eBay, the goal of the developer program is to spur extension of the PayPal payments engine to non-eBay merchants. According to Glenn Lim, general manager of alliance and developer programs, the next main initiative will be tutorials and outreach to help developers become more expert on payment processes themselves.

The sweet spot of PayPal’s market has traditionally been small-midsized merchants who have looked for simpler or less costly payment engines than those provided by major banks or credit card networks. The result is that smaller merchants are often more reliant on developers for helping them implement, not only online payment systems, but also the details of payment processes themselves, as they lack the organizational depth of larger merchants. 

That, combined with the need to diversify PayPal’s business, is driving PayPal to upgrade independent developer programs. During the latest quarter (Q1 08), PayPal’s revenues were up 32% year over year, compared to parent eBay’s 24% increase. But PayPal is clearly a lower margin business, and one that has dragged down the parent. “The decrease in operating margins was caused primarily by our faster growing lower-margin businesses, such as PayPal and Skype,” read a statement from the Q1 earnings release. Consequently, if PayPal is to redeem its value to the mother ship, it must diversify.

Last summer, PayPal began a certification program on its offerings, for which 400 developers have achieved recognition to date. In October, they announced an “Ace” program that recognized elite PayPal developers, based on factors such as their contributions back to the PayPal developer community to date, 10 developers have achieved Ace certification. Clearly both efforts are still scratching the surface.

The new outreach and education program for developers being launched this quarter will include two elements: a technology element, covering how to choose the right PayPal software product and configure it for the merchant, plus how to integrate with third-party pieces such as shopping carts or accounting programs such as QuickBooks. The other side covers education on payment processes themselves, as developers seek to aim their skills higher up the food chain when serving their merchant clients. That would cover the details of payment, refund, and other aspects of clearing processes; security; and relevant regulatory compliance processes associated with handling payments.

Also on tap is adding more verticals, an effort which began with release of developer kits for non-profits at the end of last year. Although there are obviously some large nonprofits, the sector is very much characterized by the long tail, where in the US alone there are at least 1.5 million such organizations, most of whom are not able to accept online payments. As if the move wasn't timely enough, the financial success of the Obama presidential campaign is that it showed the power of online fundraising models that tap millions of smaller donators.

Among others under consideration are primary and secondary education, local governments, real estate leasing and others (PayPal has made any decisions yet). Clearly, PayPal is looking at verticals that fit the SMB organizational profile (they are small, or lack sophisticated accounting operations). PayPal is likely to add the next verticals probably in the Q3 timeframe.

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