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Learnings from PayPal results: P2P payments, credit and acquisitions

Global payments company PayPal reported 218 million active customer accounts for the quarter ended September 2017 (Q3-2017). This was an increase of 13.51% on a year-on-year (YoY) basis. The company added that the number of new active accounts was 8.2 million nearly an increase of 90% YoY in the quarter, from 4.4 million. Here are some of the learnings from the analyst call and the results.

Take rate decline is due to increased P2P payments

PayPal CEO Dan Schulman said that take rate declines were predominately driven by growth in P2P transactions. This quarter, the take rate was 2.84% compared to 2.94% last quarter and 3.05% in the same quarter last year. which is The take rate is the total revenue divided by Total transaction value.

“Account growth was driven by the strength of our core PayPal business, followed by growth on the Venmo platform. Improvements to our on-boarding and checkout experiences and across our P2P flows enabled us to add 8.2 million new customer accounts,” CFO John Rainey told analysts.

This is significant as most of the company’s P2P transactions are free as the company is more focused on increasing usage on their platform and moving to a regime which is focussed on the ARPU approach, rather than a revenue per transaction approach.  In India’s UPI, it is the opposite where banks and payment companies are looking to increase person-to-merchant transactions rather than P2P transactions.  

Changes to consumer credit

PayPal management said that it will announce its plans for consumer credit sometime later as it involves a “more asset-light approach”. COO Bill Ready explained to analysts what it means. “To be clear on asset-light, what we’d like to do is continue to very much be in the credit business for our merchants and our consumers and provide all of the benefit that they derive from that. But we can do that in a much more asset-light way where we can free up that capital to utilize for other maybe seemingly higher turning alternatives,” he said.

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PayPal has credit loans receivable of $6.7 billion, with $830 million in merchant lending receivables including PayPal working capital advances and the portfolio from the acquisition of Swift Financial. Ready added that credit represented – about 2% or 2.5% of the Total Payment Volume (TPV).  PayPal has a product which offers credit to buyers to complete a purchase and pay later.

Company acquisitions 

Schulman said that PayPal would be “acquisitive, but in a disciplined and thoughtful manner.” “Now the criteria we look at this it got to fit into the vision and mission that we’ve set out for ourselves, it needs to accelerate our progress,” he added.

Schulman said that the acquisitions will have to complement key verticals in the company such as bill pay. Or they would give access to a geography or a technology which will help the platform. 

In India, PayPal was reportedly looking to buy wallet service FreeCharge or get a wallet licence from the Reserve Bank of India (RBI).


Paypal in Numbers

  • Active User Base: 218 million active customer accounts, up 13.51% year on year. This includes 17 million merchant accounts. These are accounts that have been active for 12 months.
  • Net adds: 8.2 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: 32.8, up 9% year on year.
  • Transactions: 1.9 billion transactions, up 26% YoY.
  • Total Payments Volume: $114.045 billion. Last quarter, it was $106 billion.
  • Transaction revenue (transaction fees on payments) grew 22% while revenue from other value-added services grew 15%. Other value-added services include interest, fees on PayPal Credit, loans receivable, subscription fees, gateway fees, revenue from partnerships etc.
  • Mobile payments grew approximately 54% to $40 billion in the quarter.
  • Take Rate (which is Total revenue / Total transaction value): was down to 2.84%, from 2.95% last quarter. Transaction take rate was 2.48%, down from 2.58% last quarter.
  • One Touch: 70 million consumer accounts opted into One Touch (which allows users to remain logged into the system to make payments) and approximately 6 million merchants accept One Touch.
  • 21% of TPV in the quarter came from P2P, which includes core PayPal, Venmo and Xoom. Venmo volume was up 93% to $9.4B in the quarter.

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