Paypal reported 203 million active customer accounts for the quarter ended 31st March 2017 (Q1-2017), with 6 million net new active accounts for the quarter. Unlike Indian digital payments companies, which focus on registered users, Paypal discloses net new active accounts, and this is the largest organic quarterly increase in net new adds over the past 3 years, up 35% from 4.5 million net additions a year ago.

The data:

  • Active User Base: 203 million active customer accounts, up 11% year on year from 184 million. This includes 16 million merchant accounts. 6 million net new active accounts added in the quarter (up 35% from a year ago). Paypal is expecting 20 million net adds for the year
  • Transactions: 1.7 billion payment transactions (up 23%) amounting to $99 billion. 32 transactions per active account (up from 28 a year ago), up 12% year-on-year. Transaction revenue (transaction fees on payments) grew 16% year on year, while revenue from other value-added services grew 23%. Other value added services include interest, fees on PayPal Credit, loans receivable, subscription fees, gateway fees, revenue from partnerships etc.
  • Mobile: 32% of payment volume for Paypal came through a mobile device. Payment volume on mobile increased 51% to $32 billion(of a total of $99 billion processed), from $21 billion a year ago.
  • Social: Its social payments platform Venmo processed $6.8 billion of the total payment volume, up from $3.2 billion a year ago; it accounts for around 6.8% of total, and was up 114% YoY.
  • Take Rate (which is Total revenue / Total transaction value): 3% for the quarter; Transaction take rate was 2.62%, flat sequentially, and down 14 basis points year on year. “P2P businesses contributed meaningfully to the take rate decline in the quarter.”

Merchant Services

Merchant services (as opposed to P2P) accounted for around 85% of Paypal’s total volume in the quarter; in the earnings call, the company said that eBay accounted for 15% of the total, a number which has been declining quarter on quarter. During the quarter, Paypal added MakeMyTrip and Vista Rooms to its list of partners in India.

On the earnings conference call, the company said that it has changed its approach to merchant relationships over the last 3-4 years: “from predominantly being a button on our left side to now being fundamental underlying platform provider to merchants as they think about how did they take advantage of mobile, and that means that we are offering a host of services across a common platform that we never did before. Full checkout type of capabilities, credit capabilities, contextual commerce toolsets, rewards integration through API sets and the list goes on and on and so invoicing capabilities.”

OneTouch

OneTouch is a Paypal service which allows users to remain logged into the system to make payments (with certain restrictions), thus not requiring an additional sign in, and leading to faster transactions, on both mobile and desktop. Paypal said that around 53 million consumer accounts opted into One Touch and more than 5 million merchants now offer One Touch based payments, and this, the company says, includes 75% of the “Internet Retailer 100”.

Bill Payments: TIO Networks

Paypal is buying TIO Networks for $233 million. It’s a bill payments processor in North America, accounting for over $7 billion in bill payments in its fiscal year 2016. “By integrating bill payment, PayPal will add another key service to its global payments platform”, it said on the earnings call. Paypal is viewing bill payment as “very sticky solution. We are really trying to build out how we can help underserved consumers manage and move their money, and that can be done in a very profitable way for us and a very consumer-friendly way for consumers as well.”

Remittance: Xoom

On the earnings call, the company said that it “launched the Xoom service within the PayPal mobile app in the U.S.”, and plans to increase spending limits “to $10,000 per transaction in the second quarter.” Xoom is available in 56 countries globally.

Venmo: Social P2P

Paypal began opening up its social P2P payments service Venmo to merchants last year. On its earnings call, the company said that it is opening up its beta for select US Paypal merchants who accept Venmo as a mobile payment option, and “We anticipate the ability to pay with Venmo will be widely deployed across millions of our U.S. PayPal merchant base by the end of this year.”

How Paypal is thinking of platform partnerships

PayPal recently announced an expansion of its relationship with Google, following which PayPal will be available in the Android Pay wallet in the United States, and accepted by retailers who accept Android Pay at the point of sale. How’s the company thinking about this? It’s an ARPU approach, rather than a revenue per transaction approach:

“We’re starting out with PayPal balance only, and for those, we’ll make money on those transactions much like we would any other transaction. As we work through other payment methods, we’ll use Visa and Mastercard tokens, tokens from others. And this is one of the interesting things about the deals we did there, that the tokens that we employ from Visa and Mastercard, when we tokenize the instrument of an issuer, we’ll pass that through a card-present rate to the merchant, so the merchant gets card-present rate, and we avoid cost on those things. It also means that we’re not going to necessarily have revenue on all of those transactions, but we don’t have cost either. And that lets us have some of our transactions where we’ll make a good margin on those. Others basically are 0 revenue and 0 cost for us, and the benefit of that is that we can drive engagement across our consumer base. And you see this across other parts of our business where take P2P as a good example. We do tremendous volume on P2P, and in many situations, those are free transactions. But those consumers that engage with us on P2P are more engaged overall and we find are some of our most profitable customers because we have higher engagement with them overall, across all other transactions where we monetize. And we think about in-store in a very similar way and what we’re doing with Android Pay in a similar way, that we’ll have some of those transactions that we monetize directly, others that are pass-through for us, but we expect it will drive overall engagement higher as we have more and more opportunities to engage with our PayPal users.”

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