Monday , April 6, 2020

A Surging Performance From P2P Services Helps Boost Results for PayPal’s First Quarter

The PayPal Holdings Inc. machine just keeps chugging. The company announced on Wednesday added momentum in the first quarter, driven in part by gains in consumer and merchant accounts, results for Venmo, its popular peer-to-peer payments app, and strong performance for One Touch, its streamlined checkout technology.

Without offering details, company officials also told equity analysts they stand ready to work with the major card networks on the networks’ recently announced initiative to develop a so-called common buy button for e-commerce.

“Our relationship with the networks could not be stronger,” Dan Schulman, PayPal’s chief executive, told the analysts during a late-afternoon earnings call. Since striking agreements with the big networks two years ago to promote card-based account funding, PayPal has gone from “an uneasy frenemy relationship” to closer ties that include access to the networks’ tokenization engines, he added.

PayPal added 8.1 million accounts in the quarter, reaching a total of 237 million, up 15% year-over-year. That total includes some 19 million merchant accounts. Total payment volume for the period came to $132 billion, a 32% increase year-over-year. Transactions per active account, an engagement metric PayPal watches closely, rose to 34.7 from 32.2 a year ago and 34 in the fourth quarter.

Just about 23% of the company’s payment volume now comes from P2P activity, which includes not just Venmo but also PayPal and Xoom transactions. Xoom is PayPal’s digital remittance service. Venmo, however, continues to be a hot product, accounting for $12.3 billion in volume in the first quarter. Schulman told the analysts the service will likely generate $50 billion this year, up 43% from $35 billion in 2017. That’s in the face of competition from Square Cash, Apple Pay Cash, and Zelle, a P2P network launched last year by the nation’s largest banks.

“In P2P, we continue to see record levels of customer acquisition,” Schulman said. Lately, some of those clients for Venmo include merchants, which PayPal began courting for acceptance last year in a bid to earn revenue on a service that’s free to consumers. More than 2 million merchant locations now accept the P2P service, with Grubhub, online food-ordering service Seamless, and Williams Sonoma recently added. As an inducement to stores, PayPal offers a 25-cent fee for so-called cash-out transactions, where users transfer funds to a Visa or Mastercard debit card.

PayPal is increasingly a mobile product, as indicated by $49 billion in volume in the quarter, more than one-third of its total volume. That’s up 52% over a year ago, and the growth, Schulman said, helps explain not only Venmo’s expansion but also that of One Touch, PayPal’s mobile authentification service. It now works with 8.6 million merchants and has attracted 92 million users, PayPal reported. “One Touch is a great thing for consumers but essential for merchants,” Schulman said.

All told, PayPal logged $3.69 billion in revenue in the quarter, a 24% increase year-over-year. But the company’s so-called transaction take rate, the portion of each transaction it keeps after expenses, continued to fall, clocking in at 2.42% compared to 2.61% a year ago. Much of the blame for this falls on foreign-exchange fluctuations and those P2P services. Venmo’s rapid growth, for example, magnifies its impact on the take rate, since it carries no fee for person-to-person payments.

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