Secure and at ease
PayPal’s Levchin turned his early fascination with encryption into a successful business model
MAX LEVCHIN’S FASCINATION with encryption started when he was a teenager in Kiev, Ukraine, and continued as he immigrated to the United States where he attended the University of Illinois at Urbana-Champaign. In late 1998, not two years out of college, he drew on his passion to co-found PayPal, the online payment system that has since attracted tens of millions of users and gained the reputation as the premier Internet transaction processor. Now online auction house eBay has acquired his company for a king’s ransom.
Not bad for a 27-year-old kid from Ukraine.
A programmer since he was 10 years old, Levchin and his family moved to Chicago in 1991, and since then he has pursued security as if on a mission. He created a startup right out of college to build secure passwords for Palm Pilots. He met Peter Thiel, and the two founded PayPal to target online payment security. Thiel is now CEO of the company.
“This company was founded on the notion of security value,” Levchin says. “Peter Thiel and I shared that vision from the very beginning.”
Thiel concentrates on company business matters, whereas Levchin remains focused on security, which he says is the key to the company’s good fortune.
“I explain [PayPal] as a security company posing as a transaction processor,” Levchin says. “We spend a lot of time designing security so it doesn’t step on the toes of convenience and not the other way around. The trade-off is fundamental.”
Mountain View, Calif.-based PayPal allows businesses and consumers with e-mail addresses to send and receive payments via the Internet, accepting credit card or bank account payments for purchases. The service extends to 38 countries, with more than 17 million users and more than 3 million business accounts.
Most of PayPal’s users are participants in online auctions, which led PayPal to be closely linked with eBay, the leading Web auction site. Although they were once rivals, the relationship between the two companies resulted July 8 in eBay’s tentative $1.5 billion acquisition of PayPal. The agreement is subject to regulatory review.
Levchin says he will stay at PayPal as it merges with eBay. “There are areas of synergy and collaboration we can explore.”
Although security is a dominant feature for PayPal, the company’s ability to carry out open communications among the millions of participants fits the growing Web services model, Levchin says. “This is a service that links people and allows them to send messages to one another,” he says. Levchin is a panelist at InfoWorld’s Next-Generation Web Services II conference Sept. 20 (for more information about the conference, go to ).
PayPal, as an online payment system, is a natural target for fraud. And Levchin has almost singlehandedly saved the company from thieves bent on exploiting the system, says Avivah Litan, a vice president and analyst covering financial services at Stamford, Conn.-based Gartner.
“If they didn’t have Max, they might have succumbed, because PayPal was susceptible to fraud and money laundering, and Max tightened them up,” Litan says.
To combat criminals, Levchin established “Igor,” an antifraud program that monitors transactions and warns of suspicious accounts. Levchin says building security and antifraud systems is a job he relishes. “The work I do is important to PayPal and to consumers in general because the work makes Internet shopping safe. It’s the view that ecommerce has arrived.”
