The company also plans to open up to other currencies, including Canadian dollars, yen and possibly Australian dollars, in the next few months, Chief Operating Officer David Sacks said. Currently PayPal accepts only U.S. dollars.
PayPal's electronic payment system, popular on auction sites, allows customers to collect payments online, with PayPal acting as a go-between for the payer and the recipient. The payer sends money to PayPal using a credit card or check, or uses funds in a PayPal account. Recipients can store money in their PayPal account, transfer the money to a separate bank account or have PayPal cut them a check.
The new service will allow account holders to maintain multiple accounts in the three currencies.
Using the new service, a buyer in Germany could send euros to a seller in the United States. PayPal will perform currency conversions at either end, Sacks said, although there will be fees involved.
The move should open up the company to a larger market, analysts said.
"There are online payment providers that claim to be international, but you still have to be U.S. merchant, or if you're in Europe you have to settle in U.S. dollars," said Ken Kerr, senior research analyst at Gartner. "This opens up the whole (European) continent for PayPal."
PayPal already has a broad international audience. Around 25 percent of all transactions involve at least one party who is outside the United States. And around 2 million of the company's 17.8 million accounts are held outside the United States as well.
But the real goal is to move beyond international transactions to intra-national transactions, Sacks said.
"What we really haven't penetrated yet is intra-country: People selling things in euros or pounds within the U.K. or Germany. By launching this we'll be able to serve a huge volume of transactions that we didn't before," he said.
There are a few companies already operating on that turf overseas, including NoChex in the United Kingdom. But PayPal may have some muscle behind it, namely online auction company eBay, whichin July to buy PayPal in an all-stock deal, worth about $1.3 billion. The merger goes to a next month.
eBay already has operations in 20 countries worldwide, and Sacks said PayPal sees "exciting possibilities" in working with eBay's international operations, though the new service was not designed with that in mind.
Gartner's Kerr did sound one note of caution regarding potential regulatory and legal problems.
PayPal has already run into legal hot water, including problems with banking regulations and . Adding more countries means adding more rules.
"Each country will have different regulations...I would guess their legal team will stay employed," Kerr said.