At this point in the connected economy’s lifespan, there are some new but still developing definitions. “Neobank” comes to mind as an online-only financial institution (FI). “FinTech,” of course, is another one. It is defined as a company that brings financial services to consumers with a better and more innovative user experience, but the term has lost its clarity due to overuse during the last year. Every company is, or wants to be, a FinTech.
But there is still one company that defies category and doesn’t fit into a neat vocabulary. That company — arguably the most dynamic creative force in the connected economy — is PayPal.
There are some words and phrases that do fit PayPal. It was a disruptive force in the payments category when it launched its peer-to-peer (P2P) payments technology in December 1998. As corporate legend has it, when PayPal started to gain traction in 1999 and 2000, credit card networks were so unsettled that head hunters and recruiters couldn’t keep up with the number of emails from legacy company executives. “Payments network” also fits, as PayPal is still based on money movement. But nothing fully captures PayPal’s spirit, intent and business model in the current lexicon of the digital-first economy. In fact, the closest term requires going beyond financial phrases – because in the connected economy, PayPal is a “catalyst.”
By the book, a catalyst is “an agent that provokes or speeds significant change or action.” And the term just might fit PayPal President and CEO Dan Schulman perfectly. From its start in 1998 to its sale to eBay in October 2002, the firm literally created the concept and execution of P2P payments outside of the traditional payments networks. By 2008, it had 150 million end-user accounts. In September 2013, it bought Braintree and its then-developing P2P platform, Venmo. In July 2015, it separated from eBay and became an independent, publicly traded company.
Since that time, PayPal has built a company that now has 377 million active accounts, with 16 million of them added in Q4 2020 alone. And as evidence that it has transcended its P2P roots, 10 million customers used PayPal in-store during Q4 2020, with $20 billion of total payments volume coming from in-store transactions across QR, tap-and-pay and cards.
“The future?” Schulman asked when speaking with PYMNTS CEO Karen Webster for the ConnectedEconomyTM series. “I think we’ve [obviously] come a long way from the button. We have a whole suite of services now that enable both consumers and merchants to … move into the digital era and thrive.”
In his interview with Webster, Schulman made it clear that regardless of what his company is called, PayPal has a very clear plan to continue its role as a catalyst for payments — but also as a force that connects disparate elements in the digital-first economy. During the conversation, he focused on three areas where the company will continue to be that force: its core payment offerings, inclusive access to the future of commerce and the development of a super app.
Expanding The Core
At its center, PayPal — which has over 29 million merchant accounts — connects merchants to consumers and merchants to payments. As Schulman pointed out, it has come a long way from the online “buy” button, and has focused some of its late 2020 and early 2021 efforts on expanding those core payments services, helping merchants connect to technology and the consumers who use it. For example, PayPal expanded its global Pay Later solutions when it launched its buy now, pay later (BNPL) service in 2020, called Pay in 4 (Pay in 3 in the U.K.). PayPal was also one of the first non-bank institutions approved to accept applications for small business loans through the Paycheck Protection Program (PPP) in April 2020. Over the course of the year, PayPal facilitated PPP loans to more than 75,000 businesses.
PayPal has also expanded its commerce platform for merchants. Its standard online product, PayPal Checkout, has been expanded to include BNPL, Venmo and PayPal Credit. It has also been at the forefront of using its digital wallet for contactless payments, expanding its usage into mobile payment systems that can work in-store. PayPal Here enables merchants to turn a mobile phone or tablet into a portable payment center accepting contactless payments that will include Apple Pay, and will also accommodate more traditional methods, like mag stripe.
The way Schulman sees it, the trend toward contactless payments and other touchless tactics, like curbside pickup, will continue beyond the pandemic. He maintains that digital channels need to be optimized from end to end. And he agreed with Webster that the next step for merchants may not be the digital-first economy so much as the “bring it to me” economy — but it might not be found in the usual delivery spaces.
“How do I go to where they are as opposed to having them come to me?” he asked. “I think we’re seeing that in some of the close, but not consummated, acquisitions that people are contemplating. Look at Walmart teaming up with TikTok. This is really about connected commerce, where consumers and merchants are having to reach out to each other. Because I don’t think we’re going to see people going to 20 or 30 different retailers to get all these different things. I think retailers need to come to them. They need to address their individual demand curve, and their need for customized, personalized offers.”
Catalyst For The Digital Economy
Schulman noted that within PayPal, discussions about merchants, especially in-store, center around tying in loyalty and data to the payment experience. In the past, merchants didn’t know much more than the transaction amount and the type of payment used. Deploying mobile solutions provides more data and opens up new options for payments.
That’s where PayPal’s connected strategy of giving merchants and consumers access to the future of payments comes in. With a digital retail experience, said Schulman, a merchant can control coupons, loyalty points, type of currency and type of payment, including BNPL. It’s not the form factor change that’s important, he explained — it’s the change in the value proposition that the form factor provides.
Those form factor changes have provided some of the biggest headlines for PayPal, and have given merchants and consumers access to two of the most potentially disruptive payment methods: QR codes and crypto. QR codes, which PayPal rolled out in May 2020, are currently being integrated into Venmo. On March 30, PayPal introduced Checkout with Crypto, which will allow PayPal customers with cryptocurrency holdings in the U.S. to check out with crypto.
At the time of its announcement, Schulman didn’t parrot the standard lines about the potential of crypto as an investment, or about using crypto as a payment method for the chosen few. He foresees it as being an inclusive, ubiquitous, everyday payment method. It’s part of his belief that PayPal has been a catalyst for change in the way that financial inclusion is taken from concept to action in the connected economy.
“This is something that can’t be overstated in terms of its importance moving into this digital era,” Schulman said. “It can be a very exciting era. It can be something that enables small businesses to not just survive but thrive. But there’s the need for broadband everywhere, so people have that connectivity even in rural areas and smaller towns. We need to do training because most small businesses are used to only serving their local community. When somebody puts PayPal into a small business, 75 percent of their PayPal sales come from out of state. You can still serve your local community, but now you can serve a much broader community and thrive as a result of that.”
Catalyst For The Future
Especially since the company’s Investor Day, Schulman has become something of an evangelist for what could be the ultimate connected economy tool: the super app. Schulman, among other tech executives, believes there are too many financial apps and too much friction for consumers forced to toggle between them. The super app, which PayPal is in the progress of building, would manage payments, shopping, savings, investing, budgeting, crypto and identity — all in one place.
“No consumer is going to have 40 or 50 apps on their phone,” he told Webster. “We don’t want to use the same password for every single one of them, even though we do. That’s why a consumer’s information is stolen every two seconds, and that’s a disaster. And so there must be super apps that come together to consolidate all of your financial instruments. And by the way, those financial instruments include rewards points, and the ability to choose buy now, pay later, or even use QR codes.”
In other words, PayPal’s role as a catalyst will meet at the super app. The company’s future trajectory is pointing that way, and it is in sync with Schulman’s sense of the ultimate role of the connected economy.
“On the consumer side, we’re a consumer platform, and that has tremendous scale — we can add more and more services where people can live a lot of their digital lives on this app,” he noted. “And for merchants who clearly want to be in the digital-first economy, this can be the operating system that enables them to move into a full, true, digital omnichannel experience. I want someone to ask us how to move into the digital world. Ask us how to sell in multiple marketplaces. All of that needs to be part of the products and services that we extend to merchants on one side and consumers on another.”
Selected by EFXA