WHEN the headhunters first approached Carl-Olav Scheible he wasn’t interested in joining Paypal, the online-payments company owned by eBay.

He tried to shrug off the recruitment consultant, and went along to the interview just to find out what the firm was up to. Having been involved in credit-card businesses and technology start-ups, he thought he might learn a few things.

But when Scheible got a look at the company’s growth rates, he had a change of heart. That was three years ago, and today the Norwegian is in charge of Paypal’s UK business.

The business is still growing, but Scheible hopes a couple of new agreements he is about to sign could be the key to speeding up the expansion drive.

The online firm has been nothing short of a phenomenon. Founded less than 10 years ago, in December 1998, it attracted 4m account holders in its first two years of operation, and today has 153m registered users, 10% of whom are in the UK. In the last financial year, it handled some $40 billion (£19.6 billion) of payments.

At its simplest, Paypal can best be described as an online version of the Western Union money-transfer service. Individuals who want to send money have to register with Paypal, and then tell the company who they want to pay and how much. The funds are then charged to their credit or debit card. Paypal deposits the equivalent sum to the recipient’s credit card or bank account. It collects a fee from the person receiving the money.

The system proved especially popular with users of eBay, the online-auction house, because it provided a quick way for bidders to pay for their goods without having to put a cheque or cash in the post. The relationship proved so beneficial that in 2002 eBay paid $1.5 billion to buy Paypal only five months after the payments company had floated on the stock market.

It has proved a far more successful deal than eBay’s other high-profile acquisition, inter-net-telephony company Skype (see panel below).

Business generated through its auctioneer parent company accounts for nearly two-thirds of Paypal’s global sales, and the key criticism of the business has been that it is overreliant on eBay. This, said Scheible, is something he wants to rectify.

The company will announce soon that it has signed an agreement with Worldpay, the division of Royal Bank of Scotland (RBS) that processes online payments. Under the deal, Paypal will join the bank’s roster of payment systems, which already includes all the big credit cards.

Scheible said the deal was a significant step for the company. “Merchants who are signed up with Paypal will be able to accept it without having to do the integration themselves,” he said. “If they can get it through RBS, then it really becomes a no-brainer.”

Paypal is dominated by small online retailers, many of whom trade through eBay. The number of big etailers, such as Amazon, that accept Paypal payments is limited – Scheible claims that 20 of the top 100 do so.

There has also been some diversification into new areas of internet commerce. Monarch Air-lines will be unveiled as a new “merchant customer” this week, the first move in Britain into online travel.

Critics suggest that the reticence of big internet retailers to sign up to accept Paypal is because the fees do not make it viable when compared with the charges levied by the credit-card companies.

Scheible suggests another reason for the lack of take-up – they are just too busy.

“For companies like Tesco or British Airways, they have a lot of other priorities. Payments is on the list of issues, but in terms of cost, it is at the lower end of it,” he said.

“We will see an increase in the number of big retailers over time, and it’s a matter of sales process and prioritisation.”

Some commentators agree that there is a degree of inevitability about this. A report published earlier this year by Forrester, the internet-research firm, said alternative payment tools helped online retailers to sell more goods to existing customers.

In a cutthroat world, such news is likely to spur other companies to sign up. And there has been no shortage of rivals getting into the payments market – even Google has gatecrashed the party with its Google Checkout service.

Paypal has shied away from two of the internet’s biggest money-spinners – gambling and pornography. The latter was for moral reasons while the former became complicated by the regulatory picture in America, the company’s home market. Paypal pulled out of gambling after the eBay deal, and since then American lawmakers have made it illegal to accept payments for online gaming and betting sites.

However, having stayed out of the sector for several years, Paypal has recently dipped a toe back in the water in other countries, such as Britain, where internet betting remains legal.

“We will work only with the top-tier gaming companies,” said Scheible, citing Ladbrokes and Betfair as examples.

He said there would be no change of stance on adult sites, even though it would no doubt prove popular with people who are uncomfortable about handing over credit-card details direct to purveyors of porn.

Paypal has not been without its hiccups – some users complain of poor service – although the company claims that its loss rate from fraud is 0.29%.

“When you’re of the scale and magnitude [that we are] you will have people that have bad experiences, and which are not necessarily due to fraud,” said Scheible. “The question is how you deal with it and follow it up. We have 1,000 people in Dublin in customer support, for example.”

He also said that the Paypal system had never been hacked into or any accounts compromised, with the bulk of fraud problems arising from spoof e-mails that trick unwitting customers into handing over their account details, a problem that Scheible said the company is working hard to crack down on.

But his main focus is to reduce the reliance on eBay for his business. If Scheible can do that, then he may well have a few more headhunters knocking on his door.

THEY PAID FAR TOO MUCH FOR SKYPE

THE purchase of Paypal has been an unqualified success for eBay, but its takeover of Skype, the internet-telephony firm, has caused some to say that the company paid so much that it was out of touch with reality.

This month, eBay admitted it would write down the value of the acquisition by $900m (£443m), and pay $530m to the previous shareholders for outstanding obligations relating to an earn-out.

When eBay bought Skype in 2005, the earn-out was fixed at up to $1.7 billion, subject to performance targets being met. Analysts have failed to see how Skype justified the valuation put on it by eBay and how it fits with the core business.

At the time it announced the write-down, the auction site also said that Skype’s co-founder and chief executive Niklas Zennström would quit his role and become nonexecutive chairman of the operation. It said the two events were unrelated.

Carl-Olav Scheible, head of the UK arm of Paypal, said: “Maybe the synergy between eBay and Skype had not materialised to the point that was expected. I believe the opportunity between Paypal and Skype may be larger.”

He added that what eBay, Skype and Paypal had in common was “disruptive” technology that has changed their respective industries – auctions, telephony and payments.

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