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Paypal reports 210 M active customer accounts in Q2-2017; Payments OS

Paypal reported 210 million active customer accounts (of which 17 million were merchant accounts) for the quarter ended 30th June 2017 (Q1-2017), adding 6.5 million net new active accounts for the quarter. The company had targeted 20 million net new adds for the year, and now has increased its guidance to 25 million. The company reported $3.136 billion in revenues, the first time it has crossed the $3 billion mark in a quarter.

The Numbers

  • Active User Base: 210 million active customer accounts, up 12% year on year. This includes 17 million merchant accounts. These are accounts that have been active for 12 months.
  • Net adds: 6.5 million net new active accounts added in the quarter. Last quarter, it added 6 million net new accounts.
  • International: 53% of accounts are active outside the US
  • Transactions per active customer account: 32.3, up 10% year on year.
  • Transactions: 1.8 billion transactions, up from 1.7 billion last quarter, and up 23% YoY.
  • Total Payments Volume: $106 billion. Last quarter, it was $99 billion, and this is the first time they’ve crossed $100 billion in total payments volume.
  • Average Payment Value: $60, up 1% year on year.
  • Transaction revenue (transaction fees on payments) grew 20% year on year, while revenue from other value-added services grew 19%. Other value added services include interest, fees on PayPal Credit, loans receivable, subscription fees, gateway fees, revenue from partnerships etc.
  • Mobile: 34% of payment volume for Paypal came through a mobile device. Last quarter, it was 32%. Payment volume on mobile increased 50% to $36 billion(of a total of $106 billion processed).
  • P2P: 21% of Total Payments Value came from P2P (Venmo, Paypal and Xoom). Venmo, the social payments platform, processed $8 billion (up from $6.8 billion last quarter) of the total payment volume; Venmo volume was up 103% YoY and accounts for 7.54% of total payments volume.
  • Take Rate (which is Total revenue / Total transaction value): was down to 2.95%, from 3% last quarter, and 3.07% for the same quarter last year; Transaction take rate was 2.58%, down from 2.62% last quarter. Take rate has been trending down for Paypal.
  • One Touch: 61 million consumer accounts opted into One Touch (which allows users to remain logged into the system to make payments) and approximately 5.6 million merchants accept One Touch. That’s 500,000 merchants added in a quarter.

Merchant services (as opposed to P2P) accounted for around 86% of Paypal’s total volume in the quarter, up 30% year on year; in the earnings call, the company said that eBay accounted for 14% of the total, a number which has been declining quarter on quarter; last quarter, it was 15%. The company said that the Total Payments Volume growth outside of eBay is growing at 30%.

Partnerships: Facebook, Apple, Samsung, Baidu

During the quarter, Facebook announced that over 1 million users have enabled Paypal payments within Facebook Messenger. PayPal and Apple announced an expansion of their iTunes integration, allowing customers to buy games, music, movies and in-app purchases with PayPal, in 12 countries, including US, Australia and parts of Europe. This is expected to expand to more countries in the coming month. Paypal already has an integration with Siri and Apple iMessage. Paypal also has an integration with Samsung Pay in the US. Note that Samsung Pay was launched in India earlier this year. Paypal also announced a partnership with Baidu, to let consumers pay with their Baidu wallet and Paypal with Paypal merchants outside China. Note that Paypal already has a partnership with Google for Android Pay, and it April, the partnership expanded to allow consumers to use Paypal as a payment mechanism in Android Pay, “wherever it is accepted, in-store, in app and online.”

Paypal’s approach to partnership is to look at ARPU and not at earnings per transaction: In the last call, the company said that they’ll have some transactions where they’ll make a good margin, and others where they have zero cost and zero revenue, but drive more usage of Paypal. “…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”, the company had said. Paypal’s goal is to get users to use the service at least twice a week.

The word that Dan Schulman focused on on the conference call was “velocity”. Paypal has done 24 partnerships in the last 18 months, and Schulman said that they can now partner in ways like they’ve never partnered before. “We have new velocity about cooperating with people. It’s created in environment that gotten very competitive one to one that’s much more cooperative. We have a ton of complimentary resources that we can use with partners. And now many times where we used to think that we will have to buy something, we can that partner on a commercial relationship to go and do that.” The company has also increased developer productivity, and is putting out “a ton of releases”, around 30,000 in the last quarter. Schulman compared it to when it would take the company a month to change its website.

In the last 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.”

Paypal now thinks of itself as a payment OS, which allows partners to build on top of.

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