PayPal Looks to Cash in on P2P And Stresses It’s Shopping for More Acquisitions

Person-to-person payments are hot these days, and PayPal Holdings Inc. has one of the hottest products in the market with its Venmo service. But as PayPal revealed Wednesday, Venmo can create some friction for its parent even as it vitally expands its payments business.

PayPal reported $14.2 billion in payment volume for its P2P service in the quarter ended June 30. That’s a robust 78% year-over-year increase and not far off the 80% growth rate reported in the first quarter. The company has doubled down on its investment in Venmo with its Pay With Venmo and Venmo Card products, both of which take advantage of Venmo’s popularity to confer merchant-payment capability on what had been a pure P2P play.

But P2P with Venmo is free to users, which continues to take a toll on PayPal. It reported its take rate—the portion of overall transaction volume that it keeps—continued to drift downward in the second quarter, notching a decline of 14 basis points year-over-year to 2.77%. PayPal blames a number of factors for the drop, but Venmo looms as a significant cause.

That’s why the San Jose, Calif.-based payments giant is pinning such big hopes on Pay With Venmo and the Venmo Card, a product cobranded with Mastercard that allows users to tap their Venmo balance at stores, though executives on Wednesday cautioned analysts not to expect quick results. “We’re still in early innings there for sure,” PayPal executive vice president and chief operating officer Bill Ready said during the company’s earnings call. Still, he pointed to a “great pipeline” of merchants interested in adding Venmo payment buttons. And the card “has seen really strong interest from our customer base,” he added.

In addition, another new initiative called “smart payment buttons,” which PayPal has introduced to enable merchants to more easily add PayPal-related options to their checkouts, “will allow a dedicated Venmo payment button,” Ready said. Merchants—and impatient investors—can’t expect quick results, he cautioned. “We’re just getting these products out to market. It’s a multiyear journey,” he said.

Overall, PayPal executives were at pains to make sure talk of a falling take rate didn’t dominate discussion of what in many respects was a strong quarter. The company expects to add fully 30 million net new active accounts this year, president and chief executive Dan Schulman said, building on performance so far. The company now claims 244 million total active accounts, up 15% year-over-year, including 19.5 million merchant accounts.

So-called customer engagement, a statistic PayPal follows closely, grew to 35.7 transactions per active account, up 9% year-over-year. In a reversal of what most observers would expect, newer users are actually more active on PayPal than ones that have been with the company longer, Schulman told analysts.

Schulman also pointed to the strength of One Touch, a biometric authentication technology in which some 102 million consumers have enrolled and which 9.5 million merchants offer. “It’s the fastest-growing product in our history,” he noted.

Schulman earlier this month said PayPal, which has acquired four companies so far this year, including Europe’s iZettle point-of-sale vendor for $2.2 billion, has no intention of closing its wallet, a point he reinforced Wednesday. “We will continue to be quite acquisitive going forward,” Schulman said. “We’re not ruling out the opportunity for a larger acquisition if that comes around.” The company has already set aside between $1 billion and $3 billion for acquisitions.

All told for the quarter, PayPal recorded $139 billion in payment volume, up 27% from 2017’s second quarter, on 2.3 billion payment transactions, up 28%. Mobile volume was $54 billion, 39% of total volume.