[via BetaNews]

eBay announced Monday that it would form a strategic alliance with VeriSign in order to strengthen security on its PayPal online payment service. As part of the alliance, eBay will also purchase VeriSign’s payment gateway business.

The online auction site will pay VeriSign $370 million for the payment gateway in cash and stock. The service is expected to generate an additional $100 million in revenue for eBay, the company said in a statement.

VeriSign’s gateway would be rolled into PayPal’s already present merchant services, and will give users a wider choice of processing options for online payments. VeriSign’s gateway processed more than $40 billion in volume during 2004.

Account security will be strengthened by VeriSign’s two-factor authentication, which gives customers a one-time password or digital certificate that will help them prevent identity theft. The new process is expected to be implemented sometime next year.