So, What Exactly IS PayPal?

PayPal's most recent earnings report got more than the usual amount of airtime because for the first time, they revealed the number of Venmo users at 40 million.  That's a lot of users, even though it doesn't necessarily mean they're all active, all the time.  PayPal generally qualifies an active user as an account that has at least one transaction in a twelve month period.  We all know there are lot of quietly back-shelved apps out there.

Regardless, according to the release, their P2P volume, which includes core PayPal and Venmo, now represents 49% of total TPV.  Their customers use a PayPal account about 9 times per month, increasing Q1 2019 YoY by 9%.  Thats not quite twice the growth reported by debit card issuers in 2018, according to PULSE Network, who conducts an industry leading study each year.  It's important to compare these numbers to schemes like debit cards, since P2P is a cash displacement payment type.  Does that make PayPal a debit network?

In conjunction with its earnings call, PayPal publicized its investment in Uber of $500M and importantly, its intent to work with the ride-sharing company on a new digital wallet.  Ride-sharing companies around the world are hopping on the digital wallet bandwagon, creating platforms that are multi-dimensional in their ability to provide financial services to both riders and drivers.  In fact, PayPal is gaining some traction in providing the underpinnings of payment features for other marquee clients, like Instagram.  Recall that back in 2015, PayPal paid $280M for Padiant which at the time was a leading white label mobile payment platform fintech. Does that make PayPal a payments network, like Visa or MasterCard?  Or, a digital wallet like Apple Pay?

Here's another aspect of PayPal - commercial loans.  In this case, PayPal offers working capital and business loans to SME through Webbank.  So, is PayPal a lending company?

In the United States, here's the one thing PayPal is not and that's a bank.  In fact, it recently sold off its credit card portfolio to Synchrony Bank and is reportedly in talks with them to issue a Venmo-branded credit card; a monetization strategy for the P2P product.  Yes, does this make PayPal a co-branded card issuer?

Let's agree that PayPal has acquired a pretty impressive array of assets and while it has struggled to gain momentum at the POS, the time may be right for a platform that has the ability to distribute payments technology and related financial services, across multiple use cases.  Unlike the card networks, for example, that operate separately for consumer and commercial payments, PayPal has the ability to more tightly integrate services and that is what I believe is going to be one of the keys to their success. 

They are building out an eco-system of solutions that span a large swathe of the value chain, but in the center is PayPal as the clearing and settlement agent.    It provides a platform for building out services, it enables lending solutions, debit and credit payments, operates an acceptance mark in both the digital and physical world, and offers a depository-like account for consumers and businesses.  For these reasons, I look at PayPal as a third party network or put another way, as the fifth network in the United States.  Not exactly, but pretty close. 


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