PayPal Corp., as it is known today, is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December of 1998 by Peter Thiel and Max Levchin, initially as a Palm Pilot payments and cryptography company. X.com was founded by Elon Musk in March of 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. On the Confinity business side, many of its initial recruits were alumni of The Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of personnel, many of whom remain at PayPal today, such as Amy Klement and several other members of the senior team.
To block automated systems from using fraud, PayPal devised a system of making the user enter numbers from a blurry picture; according to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use; though, there is evidence AltaVista used a captcha as early as 1997, before PayPal existed.
eBay watched the rise in volume of online payments, and realized its fit with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of Paypal. eBay made Billpoint the official payment system of eBay, dubbing it “eBay Payments”, but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions.
For this reason PayPal was listed in several times as many auctions as Billpoint. In February of 2000 there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11, 2001.