Peter Thiel and Max Levchin founded PayPal in 1999 under the name Confinity. The idealistic vision of the company was one of a borderless currency free from governmental controls. However, PayPal's success quickly drew the attention of hackers, scam artists and organized crime groups, who used the service for frauds and money laundering. New security measures stemmed the tide of fraud and customer complaints, but government officials soon stepped in. Regulators and attorney generals in several states, including New York and California, fined PayPal for violations and investigated the company's business practices. Some states, such as Louisiana, banned PayPal from operating in their states altogether. PayPal has since received licenses that allow them to operate in these places. Despite the initial turmoil, PayPal's market share continued to grow. At first PayPal offered new users $10 to join, plus bonuses for referring friends. The service grew so quickly that it soon became the default online payment service. Buyers wanted to use it since so many merchants accepted it, and merchants accepted it because so many buyers were using it. PayPal owes much of its initial growth to eBay users who used the service to pay for items and accept payments for their online auctions. PayPal even beat eBay at the online payment business, trumping eBay's in-house payment system Billpoint so thoroughly that in 2002, eBay bought PayPal. Then it phased out Billpoint and integrated PayPal into its services. Sellers with PayPal accounts can place icons in their auctions and buyers can simply click on a PayPal logo when they win an auction to make an immediate payment.
In early 2002, PayPal held its IPO, opening at $15.41 per share and closing the day's trading above the $20 mark [ref]. eBay purchased PayPal that same year for $1.4 billion in stock [ref]. Recently, eBay spent another $370 million to buy out another PayPal competitor, VeriSign.
In the next section, we'll learn about the different types of PayPal accounts.
