A PayPal payment could go to any email address. The recipient got a note saying money was waiting, and the only way to collect it was to open an account. The person inviting them wasn't doing PayPal a favor. They were paying someone. That's the strongest trigger a loop can have: using the product requires the other person to join.

Push and pull

The 2001 filing credits two forces for the growth: the "push" of email payments to people without accounts, and the "pull" of Web Accept, PayPal's tool for merchants to take payments on their own websites. In the second quarter of 2001 the account base grew about 18,000 a day with virtually no traditional sales or marketing.

Push is the payer bringing the payee. Pull is the merchant bringing every customer who checks out. Both put PayPal in front of a new person as a side effect of someone else getting what they wanted.

eBay was the atomic network

For the three months to June 30, 2001, customers identified 69.6% of PayPal's payment dollar volume as settlements from online auctions, particularly eBay. Sellers asked winning bidders to pay by PayPal. Bidders opened accounts to pay, and many of them also sold. Each auction was a small, dense network where the product worked the moment two people used it.

The falling share is the loop working: auction users carried PayPal into other purchases, and by 2002 it operated in 38 countries. A loop starts in its densest group and earns its size by leaving it.

A loop starts in its densest group and earns its size by leaving it.

The brake

A loop that moves money attracts people who steal it. In 2000, PayPal's provision for transaction losses was $11.0 million, 0.87% of payment volume, including $8.9 million in unauthorized credit card chargebacks. One episode from July to October 2000 cost $5.7 million. Cash bonuses made the target bigger.

The loss rate fell by half in a year while volume grew. Fraud didn't stop the loop; it forced PayPal to build the brake into the product. Every loop that pays people eventually meets the same balancing force. When Loops Break covers how to build it before you need it.

Your version of a payment to a non-user

A gift is PayPal's email payment. When a customer buys for someone who isn't a customer, the recipient gets your product, your packaging and a reason to come back, and someone else paid for it. Most brands treat gift orders as ordinary orders and never speak to the recipient at all.

1. Tag gift ordersA gift option at checkout, a different shipping name or address, or a gift card redemption. Count last year's.
2. Talk to the recipient, in the boxA printed card with an offer for their own first order, in their name if you have it. The buyer's email address isn't theirs to give you.
3. Measure the recipient loopShare of gift recipients who place their own order within a year, against customers from paid social.
4. Find your eBayThe community where your customers already gather and trade: a club, a forum, a marketplace. The loop needs one dense place to start.

Do this

• Count last year's gift orders and write what the recipient sees when the box opens.
• Name the one community where your loop could reach density first.