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Yahoo payment service no longer gratis

It's time to drum up a new source of revenue, so the portal powerhouse will begin imposing fees on its PayDirect service in the middle of December.

Yahoo will soon begin imposing fees on another of its free services, partly influenced by its desire to find new sources of revenue.

Next month, the Sunnyvale, Calif.-based company will begin charging a fee for the use of its online payment service, PayDirect. The company will charge 30 cents plus 2.5 percent of the cost of each transaction made using the service.

The new fees, which will begin Dec. 17, are comparable to those charged by other online payment services including PayPal and eBay-backed Billpoint.

"When compared to other secure money transfer products, Yahoo PayDirect is clearly a cost-effective solution," the company said in a note on its Web site.

The charges are an outgrowth of a new partnership Yahoo has with HSBC Bank, said Rich Godwin, senior brand manager for Yahoo Auctions and PayDirect. As part of the partnership, HSBC will promote PayDirect to its global clientele.

"HSBC came to us looking for a global partnership," said Godwin, adding that the company believes PayDirect and person-to-person payment have great global potential.

The new charges for PayDirect are another example of Yahoo instituting fees on services previously offered at no cost. Earlier this year, Yahoo began charging sellers to list items on its auction service. More recently, the company announced that it will soon sell high-speed Internet access in conjunction with SBC Communications.

The new fee-based services come as Yahoo struggles financially. With the collapse of online advertising, Yahoo has seen its revenue and profitability plummet. In response, the company announced a restructuring earlier this month that will result in 400 layoffs, or a loss of 13 percent of its work force, and a consolidation of 44 divisions into six.

Godwin said Yahoo's efforts to diversify its revenue played a role in the decision to start charging for PayDirect.

"We're a business. We're always going to look for ways to do that," Godwin said. "We had a great tool so we signed and announced a deal."

Yahoo customers can use PayDirect to send money to other people through e-mail. Like other online payment services, the system has been primarily used to process online auction payments.

Unlike Billpoint and PayPal, which charge fees to the receiver of the payment, Yahoo will allow either the sender or the receiver of the payment to pay the PayDirect fees. The company will either tack the fees to the amount a sender pays or will deduct the fees from what the receiver gets, depending on what the parties agree to.

The new fees for PayDirect also come in a time of flux for the online payment industry.

Earlier this month, Citibank eliminated transaction fees on all domestic payments made with its c2it payment service. Previously, Citibank charged customers 1 percent of the payment amount to send money.

Meanwhile, PayPal this month began requiring all members who receive credit card payments to upgrade to one of its fee-based accounts. PayPal charges 30 cents plus 2.9 percent of the transaction cost for each payment made to a fee-based account. However, the company still allows customers to use its service for free if they only receive money from a PayPal balance or a bank account.

Although Billpoint's fees have remained constant, eBay has been making a more concerted effort in recent months to promote the service.

Yahoo faces stiff competition from each of the services. PayPal, the leader in online payments, now has some 11 million customers and processes about 210,000 transactions a day.

Godwin declined to say how many customers use PayDirect or the amount of transactions that are made through the service. Godwin also declined to comment on PayDirect's competition, but said Yahoo plans to play to its strengths to promote the payment service. Among other initiatives, HSBC and Yahoo will allow Yahoo customers to send money by way of PayDirect through online greeting cards and through Yahoo's popular instant messenger and e-mail services, he said.

"We're going to move it into our community," Godwin said. "The competition doesn't have a network to attach itself to."

Yahoo also said it plans to expand PayDirect internationally, with the United Kingdom being one of the markets on the list. Godwin did not specify the other countries Yahoo will target.

The companies also plan to offer PayDirect through HSBC's Web site and to license PayDirect's technology to other companies.