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PayPal Idea Proposal (PYPL)

PayPal Idea Proposal (PYPL)
 

Will PayPal’s efforts to monetize its Venmo app reach a tipping point in 2019?

Report Available: January 10, 2019

 

Blueshift’s ongoing research found PYPL’s social payments platform, Venmo, thriving. PYPL has been ratcheting up its efforts to monetize the highly popular app. Venmo, however, has encountered higher-than-expected levels of fraud, especially with a key feature allowing users to transfer balances to a bank account. Venmo also faces stiff competition from a consortium of major banks.

 

Observations

  1. PYPL beat Wall Street estimates for revenue and profits in Q3 as it processed $143 billion in total payments and added a record 9.1 million net new active accounts. Volume was up 78% for the company’s social payments app, Venmo, which PYPL acquired in 2013. Venmo allows users to send money to peers for free, with the transactions showing up in a social media-like news feed.
  2. The rising popularity of Venmo has led PYPL to tout the platform as one of its biggest growth opportunities. Third Point hedge fund manager Dan Loeb, who has taken a major stake in PYPL, said Venmo can contribute $1 billion in incremental annual revenue within three years. PYPL has rolled out a three-part plan to monetize Venmo, since the core function of transferring money among friends is free: charging a fee to allow users to make instant transfers from their Venmo balance to a bank account; taking a cut when users pay merchants like Uber and GRUB with their Venmo balance; and issuing a Venmo debit card. Executives said in October that 24% of Venmo users have now participated in a monetizable action and the platform processed more than $1 billion in instant transfer volume in September alone.
  3. A Nov. 24 Wall Street Journal report, however, may have taken some of the shine off Venmo’s glowing outlook. The newspaper reported that higher-than-expected levels of fraud plagued Venmo earlier in the year, leading to a $40 million operating loss in the first quarter, significantly higher than the company expected. The fraudulent activity prompted PYPL to suspend thousands of suspect accounts and turn off some features, such as instant transfer. Venmo has since reinstated instant transfer but adjusted the 25-cent flat fee to 1% of transaction volume. The instant transfer option was partly a response to competition from a consortium of major banks – including JPM, WFC and BAC – who launched their own peer-to-peer payments platform, Zelle, in 2017. Research firm eMarketer predicted Zelle’s user base will grow by nearly 75% this year and surpass Venmo.
  4. Venmo’s importance to PYPL has never been higher as another of the company’s expansion efforts continues to receive regulatory scrutiny. PYPL hoped its $2.2 billion acquisition of Swedish financial technology firm iZettle – its largest purchase ever – would help it move beyond online transactions and into physical stores, where it has struggled to gain traction despite years of effort. But Britain’s Competition and Markets Authority said this month that it would be undertaking a further review of the merger as PYPL has not adequately addressed concerns that the deal could hurt competition, leading to higher prices or reduced service quality for consumers. iZettle offers a similar service to SQ with its small credit card readers that allow small businesses to accept payments on smartphones or tablets. iZettle, which has a major presence in 12 countries in Europe and Latin America, expects to process about $6 billion in transactions this year.
  5. Blueshift Research’s Sept. 18, 2017, report found no signs that PYPL’s momentum was waning and highlighted several enormous avenues for further growth. Sources said PYPL was gaining traction in merchant services and payment processing through its own brand and its Braintree subsidiary. Venmo was identified as one PYPL’s most exciting growth opportunities, though the competition with Zelle was expected to be fierce. Sources said PayPal was likely to struggle to become an in-store payment option as brick-and-mortar shoppers are not demanding it, and even mobile phone systems that are faster and easier to use are not gaining traction in stores.

 

Will fraud derail Venmo’s growth trajectory? What kind of traction is Venmo getting with merchant payment options? How big a threat is Zelle to Venmo’s growth? What are PYPL’s other big growth opportunities and obstacles? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Online retailers, Physical retailers, Payment technology developers, and Industry specialists.

 

Companies: PayPal Holdings Inc. (PYPL), Bank of America Corp. (BAC), Grubhub Inc. (GRUB), JPMorgan Chase & Co. (JPM), Square Inc. (SQ), Wells Fargo & Co. (WFC)

 

Research Begins: December 17, 2018

 

 

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