eBay's token effort is big news for online money

eBay's purchase of VeriSign's payment gateway service makes sense for the company and will shake up its competitors

eBay's acquisition of VeriSign's payment gateway business makes a lot more sense than buying Skype. Moving other people's money around is a good way to make more of it yourself, and VeriSign is much better positioned for SME use than eBay's consumer payment service PayPal. Not that PayPal will be neglected: it will absorb some of VeriSign's authentication and certification technologies, further distancing it from the somewhat uncertain reputation it has had in the past.

If eBay uses the VeriSign deal cleverly, it could go a lot further than that. Part of the agreement is the purchase of up to a million security tokens — physical devices that generate constantly changing security information. When used as part of two-factor authentication — authentication dependent on something you know and something you have — these can make online transactions far more secure than with standard unadorned credit cards.

By distributing these widely, eBay can create a personal funds transfer service that is safer than those provided by most retail banks and card providers. And a lower-risk service is cheaper to run — such a service could be just as profitable to eBay as a less secure one even if the company absorbs the higher up-front cost. In a competitive environment, this will be just the thing to persuade others to take security more seriously, promoting higher quality authentication across the board.

That's the upside. The downside is that although PayPal has improved immensely since its early days, you don't have to look far on the Net to find nests of dissatisfied users. eBay runs the risk of contaminating the VeriSign reputation with that sort of suspicion.

To some extent, this is a hangover of past panics — many people don't realise that PayPal is regulated across much of Europe by the same rules that govern other established companies providing electronic money services: in the UK, the Financial Services Authority imposes transparency, accountability and liquidity requirements on the company. Yet the 100,000 users of VeriSign's payment services will have understandable misgivings, and eBay will be wise to understand these — and to work harder at solving the problems of its unhappy clients

It will also have to be careful on other fronts. If it makes many more of these carefully planned, sensible and generally beneficial moves, we may have to assume that despite the frankly incomprehensible business with Skype the company really does know what it's doing. The Internet has seen many strange things in its short and exciting life, but are we really ready for an outbreak of competence?