Online Payment Processor PayDirect Is Folding

Rhett Pardon
SUNNYVALE, Calif. — Online payment processor PayDirect is slated to phase its service out Nov. 22 because the Yahoo Inc. division failed to attract enough users.

PayDirect, which allowed online adult transactions, was introduced four years ago by Sunnyvale, Calif.-based Yahoo in a partnership with HSBC Holdings. The unit offered person-to-person payment services and online money transfers.

Friday’s announcement puts a timetable for the payment processor’s death.

PayDirect’s website said that after Nov. 22 its customers won’t be able to open any new accounts or complete any new transactions, nor will they be able to send money to or receive money from a person who is not currently a PayDirect customer.

“‘Send money’” transactions initiated prior to Nov. 22 will be completed if recipients accept funds within 30 days after send date; thereafter transactions will be canceled,” its website said. “You can still view your account records and withdraw any pending balances until Feb. 15. After Feb. 15, you can only access your PayDirect account to review past transactions and/or close your account.”

By May 15, the service will be closed completely, and users will no longer have access to the website.

Yahoo did not return phone calls to XBiz Friday afternoon.

Yahoo launched PayDirect four years ago after buying Arthas.com Inc., a payment technology provider. The company partnered with HSBC and offered a service where individuals would send payments to sellers of items on Yahoo's online auction site without using a credit card.

The service expanded to the online adult arena after word got around that its terms of service agreement made no mention of "sex" or "adult" content.

In December, PayDirect began offering an online money-transfer service that let users send money from the United States to foreign countries, in an effort to gain ground in an untapped market.

The demise of PayDirect may have been aided by the dominance of eBay unit PayPal, which reported 56.7 million accounts at the end of its third quarter. PayPal said that number represents a 61 percent increase from the year-earlier period.

Last November, Citigroup Inc. closed its c2it online money-transfer service, also citing difficulties establishing a large enough user base.

"Without a large user base to support PayDirect, the business doesn't scale," Yahoo spokesman Brian Nelson told Dow Jones Newswires. "We're discontinuing the service in an effort to focus on the businesses that are core to our future growth."