On PayPal, the U.S. Lags in Selling to the World

Roughly 95 percent of the world’s consumers live outside the United States, yet small merchants in the U.S. don’t pay enough attention to them. That’s the conclusion of a study conducted by PayPal, which looked at transaction data in 11 countries during the first half of 2010 to find out how much cross-border commerce is taking place on its network.

For merchants in China that use PayPal, 90 percent of sales are to overseas customers. In Hong Kong it’s even higher: 96 percent. And in the United States? Only 14 percent, placing the U.S. last among the countries surveyed.

“The Internet has opened up so many doors, and I don’t think merchants in the United States have really taken advantage of that yet,” says Eddie Davis, senior director of small- and medium-business merchant services at PayPal.

It’s probably no surprise to see the United States lagging. The U.S. imports a lot more than it exports, and its big exporters tend to be big corporations, not the small businesses that are PayPal’s most typical users. The numbers might also reflect the fact that Americans are such insatiable consumers that small businesses can do perfectly well just by serving customers in their own country, so they don’t feel pressed to look beyond their borders.

Conversely, it’s also not much of a surprise that merchants in China find most of their customers overseas. Indeed, 39 percent of the transactions done by Chinese merchants were with customers in the U.S.

But it’s the degree of difference that Davis finds striking. “You have China doing 90 percent of sales overseas, and only 14 percent in the United States—that’s a huge gap,” he says.

Davis argues that small and medium-size businesses in the U.S. are missing out on a big opportunity. PayPal claims it can help merchants expand into international markets; its system makes it easier to do business with customers in multiple countries, for example by handling tricky stuff like currency conversions automatically.

The company itself has been expanding internationally. Last quarter, 47 percent of PayPal’s revenues came from outside the United States, up from 42 percent at the beginning of 2009. That’s mostly because it’s owned by the online auctioneer eBay, and as eBay expands into new countries it brings PayPal along.

PayPal, which was founded in 1998, may be the closest thing to a global currency that has ever been created. Based in San Jose, California, the company operates in 190 markets, sending and receiving payments in 24 currencies on behalf of 90 million active members. In the first nine months of 2010 it did $2.5 billion in revenues, putting it on track to surpass $3 billion for the year, on transactions that could exceed $80 billion.

Now, hoping to build on that momentum, PayPal is trying to make it easier for U.S. merchants to do business with customers beyond their borders. But there is more to it than just making some great software. It means undoing an entire mindset and creating a culture that recognizes there is a world outside the United States. That kind of change may take some time.

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