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eBay spends $370 million for PayPal rival

Auction giant buys VeriSign's online payments service as part of a larger deal.

eBay plans to pay $370 million for an online payments service operated by VeriSign as part of a broader agreement between the two companies, the auction giant said Monday.

According to the two companies, VeriSign's payment gateway business, which allows small businesses to accept credit card and other payment types online, processed more than $40 billion in customer transactions last year. eBay sees the service as a way to expand its own PayPal transactions division to a new category of small- and medium-size business customers.

The VeriSign service "perfectly complements PayPal's existing payment services," PayPal President Jeff Jordan said in a statement. "This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly."

The deal is one portion of a multipart agreement between the two companies. The pact will also see eBay tap VeriSign for a wider range of digital security protections.

Under the terms of the agreement, eBay will adopt a new kind of transaction protection from VeriSign that will give customers one-time passwords or digital certificates, guarding against identity theft. The new program will begin sometime next year.

eBay said that the VeriSign transaction service business will likely generate about $100 million in revenue for the company in 2006. The acquisition is expected to close in the fourth quarter of 2005.