Online sales took a big jump during the holiday season, surging 11.1% from 2011, according to recent numbers from the National Retail Federation. That’s because many online sellers offered more incentives, like free shipping, to lure price-conscious shoppers away from brick-and-mortar retailers.

The long-term trend for Internet transactions continues to point upward: in 2016, consumers will spend a total of $327 billion on online purchases, up from $202 billion in 2011, according to market research firm Forrester Research.

The 2016 figure will amount to 9% of all retail sales. To put that in context, in 1999, during the early days of e-commerce, Internet sales accounted for a mere 1% of all retail sales in the country.

eBay Traces Its Roots to the Dawn of the Internet

One company that continues to attract a huge number of online buyers is eBay Inc. (NasdaqGS: EBAY). The company is the world’s largest online marketplace, with 112.3 million active users who buy or sell goods on its websites, either through competitive auctions or at fixed prices.

In addition, eBay operates PayPal, which allows users to make online transactions using their credit or debit cards without sharing financial information. In 2011, eBay acquired GSI Commerce, which provides e-commerce and marketing services to businesses.

eBay was one of the earliest e-commerce companies. It was founded in 1995 by computer programmer Pierre Omidyar, who thought that an auction site could have strong potential as the web continued to expand. The official story is that Omidyar’s fiancée, who was an avid collector of Pez candy dispensers, was having trouble finding other people to trade with, so he thought a site like eBay might help.

The company, then known as AuctionWeb, hosted thousands of online auctions in its first year. It went public under the eBay banner in 1998 and purchased PayPal for $1.5 billion in 2002.

As Elliott Gue pointed out in the September 21, 2012, issue of our Personal Finance newsletter, PayPal puts eBay at the forefront of two key trends: the ongoing increase in online shopping and the shift toward credit and debit cards and away from cash and cheques.

Payments Business Continues to Drive Growth at eBay

Eleven years on, the PayPal acquisition continues to pay off for eBay. The company reported its latest results Wednesday evening, and the division continued to be a standout:

In the 2012 fourth quarter, eBay’s payments business (which accounted for 39% of the company’s total revenue) saw its revenue surge 24% from a year earlier, to $1.54 billion. Marketplaces revenue (51% of the total) gained 16%, to $2.05 billion. GSI’s sales (10%), gained 10%, to $398 million.

The across-the-board increases pushed up eBay’s total revenue by 18%, to $3.99 billion from $3.38 billion, topping the consensus estimate of $3.98 billion. Excluding one-time items, earnings jumped 17%, to $927 million, or $0.70 a share. That beat the $0.69 a share that the Street was looking for.

For the first quarter, eBay forecast earnings of between $0.60 and $0.62 a share on revenue of $3.65 billion to $3.75 billion. That fell just shy of the consensus estimate of $0.64 in profits on $3.8 billion of revenue.

eBay Is Riding the Shift Toward Smartphone Payments

The company continues to have huge success with its mobile operations as more consumers use tablets and smartphones to make purchases. The eBay mobile business ended the year with $13 billion in sales volume, 120% higher than 2011’s result. And PayPal mobile’s volumes came in at $14 billion, up over 250%.

PayPal now aims to build on its online success by processing more offline transactions. For example, it recently teamed up with Discover Financial Services (NYSE: DFS) to let PayPal users pay use their PayPal account to buy goods at any retailer that takes the Discover card. Users will be able to make these purchases using a plastic PayPal card or through their smartphones. This new program will start with 1,500 major retailers in the second quarter of this year.

The company also offers PayPal Here, which allows merchants to process regular credit card transactions using a reader that attaches to the Apple (NasdaqGS: AAPL) iPhone or devices powered by Google’s (NasdaqGS: GOOG) Android operating system.

PayPal Has Plenty of Room to Grow

Just prior to its earnings release, the company announced that it had signed an agreement with point-of-sale equipment supplier NCR Corp. (NYSE: NCR) to add PayPal to NCR’s transaction-processing equipment for restaurants. That will allow diners pay their bills using their smartphones.

The company will also incorporate its technology into some of NCR’s products for gas stations and convenience stores, which will let consumers use mobile devices to pay for items like gas, food and car washes. That will help PayPal establish itself in these markets ahead of its competitors, which include Google’s Wallet mobile-payment service and other transaction processors, such as Square and the Isis Mobile Wallet.

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