Tuesday , July 7, 2020

How PayPal Plans to Leverage Its Newly Won Foothold in Online Payments in China

Top management at PayPal Holdings Inc. made it clear Wednesday the company will continue to hunt for acquisitions and intends to leverage its recently won clearance to acquire a 70% stake in China’s Guofubao Information Technology Co. Ltd., better known as GoPay.

The Chinese venture, in which PayPal will become the first non-Chinese company to offer online payments in that vast market, “is a very significant development for us,” PayPal chief executive Dan Schulman told equity analysts during a call to discuss the company’s third-quarter results. “Our initial focus will be on providing cross-border payment services to Chinese merchants and consumers,” he added.

“Significant development” is almost an understatement. The acquisition, which the People’s Bank of China and other regulators approved Sept. 30, allows PayPal to operate directly in a massive market featuring more than 500 million online shoppers. The highly coveted market is expected to total almost $2 trillion in online sales this year. PayPal will gain access through GoPay’s third-party payments license.

Schulman: “We are very excited about our growth opportunities,” in the wake of PayPal[‘s deal for 70% of China’s GoPay.

In the wake of this deal, “We are very excited about our growth opportunities,” Schulman told analysts on the call. “It’s an enormously meaningful event for us. We have been working this for years.” PayPal’s willingness to “work closely with regulators” in China, he added, helped clinch the deal. “We’re innovators but we’re partners with the existing structure,” he said. “That enabled this event to happen.”

But Schulman made it clear he sees ways to leverage the GoPay deal. The key, he said, lies in PayPal’s existing base of users, totaling 273 million active consumer accounts in the quarter. The GoPay deal “increases our total addressable market quite significantly,” Schulman said. “We can connect their vast e-commerce system to our vast market of consumers. Now we can start to facilitate that.”

PayPal clearly doesn’t intend to rest content with this deal. “You should expect us to use our balance sheet to seize growth opportunities where we see them,” Schulman told an analyst who asked about further acquisition possibilities.

One other key initiative is moving forward more smoothly now than earlier this year, Schulman reported. The company’s integration with Charlotte, N.C.-based bill-payment processor Paymentus Corp. had slowed when the size and complexity of the job snarled progress this summer. But on Wednesday’s call, Schulman said “full-stack integration” will have been accomplished by the end of the year. “I’m pretty pleased,” he added. The integration with Paymentus is important for PayPal in that it takes the company into a wholly new—and fast-growing—payments market.

Schulman also reported that efforts to draw revenue from PayPal’s popular Venmo peer-to-peer payment service, which is free to users, are starting to bear fruit. The service ended the quarter with an annualized revenue run rate of nearly $400 million, he said. The company offers Venmo to merchants as a payment option and also draws revenue from processing instant withdrawals. Last week, PayPal said it will offer a Venmo-branded credit card next year.

Efforts like this have increased the fraction of what PayPal calls “monetized users” of Venmo from 24% a year ago to 35% in the third quarter. Still, Venmo and PayPal P2P in general are still helping to shave points off of PayPal’s take rate, the percentage of each transaction the company keeps. That rate drifted down 13 basis points in the quarter to 2.21%.

Venmo’s volume overall hit $27 billion in the quarter, up 64% year-over-year. Venmo payments will exceed $100 billion for the year, PayPal projects.For the quarter, PayPal reported 295 million active accounts (including 23 million merchant accounts), up 16% year-over-year, and $179 billion in payment volume, up 25%. P2P volume, including core PayPal, Venmo, and the Xoom cross-border remittance service, came to $51 billion, a 39% increase and 28% of the company’s total payment volume. Mobile payments accounted for $77 billion of volume, up 34% and now 43% of total payment volume.

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