PayPal Experiences Global Outage

PayPal was unable to process any transactions Monday as the Internet retailer faced “internal” problems, which put a major damper on sales for more than four hours.

The outage happened at 10:30 a.m. Pacific Time and affected all users for about four hours. After dealing with a host of scattered problems, customers had their service return by 3:30 p.m., according to eBay spokesman Anuj Nayar.

“I haven’t heard the absolute clear definition of what happened from the engineering team yet,” Nayar said. “I can confirm that it was an internal problem, not an external problem.”

PayPal’s blog fingered a faulty piece of hardware as the cause of all the trouble.

The company is now considering whether merchants should be reimbursed for sales lost during the outages, Nayar said.

Mounting competition from Amazon, paired with weak business at its MarketPlace, has pushed eBay to depend on PayPal to be the driving force behind future growth.

PayPal is an e-commerce business that allows payments and money transfers to be made via the Internet. It serves as a simple electronic alternative to checks or money orders and is the method of choice for those buying and selling on sites such as eBay.
The payment service accounts for about one-third of eBay’s sales but only a smaller proportion of its profits. With around 75 million active users, it is the world’s largest Internet-based payment system.

According to Nayar, It deals with $2,000 per second in online transactions.

PayPal sales went up by 11 percent while revenue dropped by 14 percent at MarketPlaces during the second quarter.

Analysts did not consider Monday’s incident to be a significant financial loss for eBay.

“I wouldn’t expect it to be a large monetary loss for them. Overall, PayPal is a relatively small part of eBay’s profitability,” Kaufman Bros. analyst Aaron Kessler said.

About 16 percent of eBay’s profit came from PayPal in the second quarter, he added.

“An occasional server shutdown happens to a lot of companies. Obviously you don’t want to have it happen more than a couple of times a year or you do start to have brand or reputation concerns. But we’ve seen issues with Google Inc, Netflix Inc, and Inc over the last couple of years, so I don’t think an isolated incident is a huge deal for these companies.”

“I don’t think most people view it as material to their earnings or revenue,” he said.

EBay shares were up 3.7 percent in the regular session, but fell 2 cents to $22.02 in after-hours trading.

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