A relationship with online auctioneer eBay Inc. has become a tidy revenue engine for Wells Fargo & Co.

The bank, with $400 billion in assets, reported $3.8 billion in online retail-payments volume in the first quarter, up nearly 50% from the year-earlier quarter. Last year, Wells Fargo processed a record $12 billion in Internet retail payments, and it's on track to break that record this year. A substantial part of that first-quarter volume came from PayPal, the payments subsidiary of eBay.

Wells Fargo provides PayPal with a global payment gateway to process credit-card payments both domestically and internationally. The gateway gives PayPal access to Visa and MasterCard banks in the 38 countries in which PayPal operates, and transactions can be settled in five currencies. It also processes checking-account payments for PayPal using an automated system with a capacity of 6 million transactions per hour.

Because all of its payments are processed online, PayPal doesn't require point-of-sale terminals. The gateway makes it as simple as possible for PayPal customers, many of whom are individuals, not businesses, to use the service. Yet behind the gateway lies a sophisticated transaction-processing system that connects to Visa and MasterCard subsidiaries around the globe. In addition to settling transactions, the system must comply with complex rules and regulations surrounding multicurrency transactions. "The gateway isn't just about technology, it's also about compliance," says Michelle Banaugh, Wells Fargo's senior VP of E-commerce.

In the third quarter of 2003, Wells Fargo processed $1.9 billion in nonauction online payments. During that same quarter, U.S. retailers rang up $13.3 billion in retail Internet sales, according to the Department of Commerce. The government figures exclude payments from auction sales.

PayPal's payments volume hit $4.3 billion in the first quarter, a 64% year-over-year increase. PayPal has expanded into nonauction markets as well, although 70% of its payments volume comes from auctions.