The purpose of this report is to introduce the economic concepts and models that have shaped the development and growth of online payment systems, in this case, Pay Pal. The report achieves this by describing the relevant economic models and analysis of PayPal in context of digital and online trends. This report refers to PayPal and its relation to the ‘network’ and ‘attention’ economies and discusses some of the issues PayPal faces today and for the future. Hence, this report presents only a broad context of online payment systems and does not present in depth analysis of economic values or trends. Assumptions are made based on both the success of PayPal and the issues it faces.
During the early 2000’s, the development of Web 2.0 provided innovations that had begun a revolution online in user interactivity. The internet was evolving into a dynamic platform which offered a new level of interaction and contact between users. For savvy start-ups, this interactivity provided web developers opportunities to build applications which allowed user generated content and spawned the growth of online marketplaces. With this growth, the need for safe and secure online transactions for consumers became an essential driver for business success. Innovations in secure online payment systems had evolved that became the intermediaries between web users and their financial institutions. For users, online payment systems provided the opportunities for financial transactions without having to expose individuals bank account details. For business, these systems offered the ease of receiving online payments without having to deal directly with traditional financial institutions like banks. One of these systems, PayPal, provides these services and has grown into one of the Internet’s most successful online payment systems.