Right to brew

Any eBay collector already knows about "person-to-person" payment systems that let customers send money to other parties over the Web. Millions of people have used these alternatives to checks and credit cards to pay for a baseball card or dining room set bought from someone halfway across the country. But now, startups and old-fashioned banks are looking to make these systems mass-market tools of personal finance.

Person-to-person payment systems handled an estimated 42 million transactions last year, according to financial-services consultancy TowerGroup. While the average transaction was only worth about $45, those little fund transfers added up to $1.9 billion, up from almost nothing in 1999, when most of these services were just getting started.

Although still limited mostly to auctions, email disbursement technology aims to be an electronic alternative for all personal transactions: grandparents sending checks to grandkids, homeowners paying gardeners, and so on. Person-to-person payments pull funds from user credit card or bank accounts and credit them to recipients' accounts. Sometimes paper checks are mailed. (See "Bidding Up Payments," November 14, 2000, p86.) Stand-alone vendors such as PayPal, and giant banks such as Bank of America, all use these systems.

Most services now are trying to bundle personal and business transactions with some online bill paying. And PayPal partnered in February with credit card issuer Providian Financial to create a co-branded credit card.

"The key is to make a payment service ubiquitous, that works across the board for any type of payment," says Peter Thiel, PayPal's founder and chief executive.

Online auctions will continue to dominate the person-to-person transaction market, accounting for 95 percent of payments through 2005, according to a January report by TowerGroup. And auction specialist PayPal has been the industry's brightest star.