Thinking About PayPal

Late last year, market powerhouses AMEX and PayPal, announced their new partnership (click here to read the full press release), capping off a year of big changes for both companies.  AMEX is now under the leadership of Stephen Squeri and PayPal has filled in the last quadrant of its partnership strategy with the four major global networks.  Let's just quickly recap here:

  • July 2016 - Visa announces its strategic partnership with Paypal to present their cards as a "clear and equal payment option" at the POS as well as allow users to transfer money via Venmo to their Visa debit card. PayPal will also participate the Visa Digital Enablement Program to enhance their presence at the POS.
  • Sept. 2016 - PayPal announces a strategic partnership with MasterCard, to enable the card brand as a "clear payment option" at the POS and allows users to transfer money via Venmo to their MasterCard debit card.  (Let's also remember that MasterCard is the brand onthe PayPal cashback card.)
  • Jan. 2017 - PayPal announces its partnership with Discover to enable its users to better "find" Discover as a payment option and use their cashback bonuses for payments.

And now, AMEX completes the integration strategy, ensuring that each of the global card brands has its place in the PayPal eco-system.  Quite an accomplishment for a company that was spun off from its eBay parent company a mere three years ago.

Now for my thoughts...

PayPal continues to hold off its competitors in the wallet segment through the power of its first-to-market share gain and relatively unscathed position of trust in consumer's mind (for online purchases).  In a recent edition of Digital Transactions, citing data from a 451 Research survey, 66.9% of consumers used a PayPal digital wallet in Q2 2018.  It's nearest competitor was ApplePay at 30.5%.

The problem PayPal had to solve, in order to appeal to more consumers, was its reliance on ACH.  Inexpensive, but slow to settle and unavailable to anyone without a checking account, it essentially meant that PayPal's reach was being squeezed as consumers became more comfortable shopping online with other payment forms.

Additionally, and perhaps even more importantly, PayPal was simply not going to win in any head-to-head competition with the global card networks.  There really was only one solution for them and that was partnering with the networks, by offering them a branded position in their wallet in exchange for what I suspect are favorable pricing concessions.

If one reviews the above list, you can see that essentially, they replicated the strategy for each network with slight variations, but the bottom line strategy is -  best to play well together. The question is, now that PayPal has completed the process to create a macro-environment where multiple brands co-exist, what's next for the company?

I believe that PayPal still has an acceptance problem to solve which will become more apparent as the other wallets gain market share.  Their early attempt at mobile payments at the POS was not widely enabled and the user experience was sub-optimal.  They've improved their online checkout experience, but it's competing against one-click or registered payment forms.  The bigger merchants have their own wallets.  PayPal is still a de facto choice for consumers when they are unfamiliar with a merchant's website or are especially risk adverse, but this is not a path to growth.

In the long-term, as many company's experience that enjoy first mover advantage, maintaining that position requires a lot of investment and an appetite to continually keep ahead of the pack.  But for now, give them credit for sticking to their roadmap.



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