Monday , November 23, 2020

Visa Will Be the Network for the New Venmo Card As PayPal Gets Set for Growth in China

News emerged Wednesday from PayPal Holdings Inc.’s earnings call that Visa Inc. will serve as the network for a Venmo credit card PayPal announced in October. This development follows by one week PayPal’s announcement that it has struck a deal with UnionPay, China’s payment card giant, to integrate UnionPay cards in PayPal’s wallet and allow PayPal users to pay Chinese merchants.

The call, held to discuss PayPal’s latest quarterly results, reflected an upbeat fourth quarter in which active accounts cracked the 300-million mark, growing 14% year-over-year to 305 million (including 24 million merchant accounts), while payment transactions increased 21% to 3.46 billion. Total payment volume grew 21% to $199.4 billion, helping to drive a 17% year-over-year increase in total revenue to $4.96 billion.

“We’re entering the year with a lot of momentum,” PayPal chief executive Dan Schulman told equity analysts on the afternoon call.

The UnionPay deal alone could carry significant implications for PayPal’s global reach and growth outlook. Calling it a “landmark agreement,” Schulman said the pact is “one of the most exciting things we have going on,” though he warned against short-term expectations. “This will take some time to implement,” he said.

Schulman outlined the growth potential by pointing to forecasts indicating total consumer payments in China are expected to grow from $1.5 trillion to $3 trillion over the next three years on “well over” 1 billion users. “This is an explosive market,” he added. “We’re investing against the opportunity.”

A big part of that investment comes in the form of PayPal’s 70% stake in Guofubao Information Technology Co. Ltd., better known as Gopay. With that deal, which closed last month, PayPal won the right to be the first foreign company to offer online payments in China’s vast market.

On the domestic front, the deal for Visa to serve as the network for a new Venmo-branded credit card could carry big implications for the peer-to-peer payments service’s ability to generate new revenue. The card, news of which broke in October, will be issued by Synchrony Financial and will allow PayPal to tap interchange income on each transaction. It should also significantly boost Venmo’s point-of-sale usage.

While Venmo is a wildly popular payments app, PayPal has struggled to generate revenue from the service, in which P2P transactions are free. The problem has grown especially acute with Venmo’s fast growth. The app finished 2019 with $102 billion in payment volume for the year, up 56% over 2018, and 52 million active users.

The good news is that the service is generating revenue at an annual rate of $450 million, said Schulman. With losses reducing “each year,” he added, “we’re seeing a line of sight to break even.” Now, with the new cobranded Visa card, PayPal will put an even stronger emphasis on Pay With Venmo, a program aimed at letting users apply the app to pay in stores, Schulman said.

PayPal has proven willing to lay out large sums to bolster its core payments business, and the biggest investment last year came with its $4-billion deal to acquire Honey Science Corp., announced in November. Discussing the deal with analysts Wednesday, Schulman said Honey’s shopping assistant and other online tools will allow PayPal to increase a closely watched metric, user engagement. That metric is already rising fast. Transactions per active account reached 40.6 in the fourth quarter, up 10% year-over-year.

For the year, PayPal’s revenue totaled $17.77 billion, up 15%, on $712 billion in payment volume, up 23%.

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