PayPal shares are up nearly 60% since the company spun out of eBay in July 2015. The rise has defied skeptics who thought PayPal would get steamrolled by much larger players in the payments industry. But instead of trying to be an alternative to credit and debit cards, the company returned to its pioneering roots, solving problems that Visa and Mastercard had yet to address.
Some $25 billion flowed through Venmo, PayPal’s peer-to-peer payment platform, in the last year — transaction volume doubled in the latest quarter. The service has changed the way friends split bills and pay rent. It’s one more nail in cash’s coffin. Venmo has yet to provide much revenue for PayPal, though, so the company is focused on getting Venmo users to use their accounts for e-commerce purchases.
PayPal has other big plans, as well. The company bought international money-transfer service Xoom shortly after the spinoff and acquired bill-payments service TIO Networks in July. CEO Dan Schulman tells Barron’s Next that the acquisitions push PayPal toward its goal of “democratizing financial services,” by making it easier for people to manage money even if they don’t have bank accounts. Of course, that noble goal has a business rationale as well, by exposing PayPal’s core product to a largest set of customers.
Barron’s Next recently spoke with Schulman, who’s passionate about payments to the point where he’s made his staff leave their offices to cash checks without the benefit of their bank accounts. The exercise has helped him identify other friction points in the payment system that PayPal can try to fix.
Below are excerpts from our conversation with Schulman.
What gets you most excited right now?
The progress we’re making towards democratizing financial services. Two billion people around the world and maybe 70 million or so people in the US are underserved by traditional financial institutions. They stand in line for sometimes over an hour just to cash a check. It costs 2% to 5%. Then when you get cash, you really can’t do much with it. It could cost you $8 to $10 to take that cash that you just paid 2% to 5% to get, to now transform that into a money order to pay your cable bill. Technology can make the managing and the moving of money much more of a right than a privilege for the affluent.
People worry about what will happen to cash users and people who don’t have bank accounts with the rise of more digital banking and payment options.
I think it’s the opposite. Really interestingly, there is more smartphone penetration in lower income demographics than in higher income demographics because it’s the only device they use to access information online. For those who are underserved, managing and moving money is like a part time job. It takes 10% of disposable income — the same amount they spend on food — on unnecessary fees and interest rates. We can make a big difference in that.
You have a lot going on with Venmo now as you add new capabilities and try to make money off the service. What can users expects?
Venmo certainly hit a chord with the millennial generation and it is clear that we are benefiting from network effects. Everybody has Venmo, and if you don’t have Venmo, somebody wants you to have it. People open the app several times a week not just to make a transaction, but to see what their friends are doing. Now we are taking the next step, which is to start to enable the Venmo customer to use it in more context. That’s Pay with Venmo, which is allowing Venmo users to use their Venmo accounts anywhere where PayPal is accepted. If you see a PayPal button as a Venmo user, you will be able to click it and have a seamless checkout experience. We’re in the process of rolling this out and it will be largely complete by the end of the year.
Since it’s a still PayPal button, the consumer will have to know that PayPal and Venmo are part of the same company.
That’s kind of what we are now communicating out, but we don’t want to do it until we get a critical mass of PayPal merchants. We’ll make sure that everyone knows about it, because the whole service is viral by nature. Eventually we will have what is called dynamic button painting, which means that we’ll know when you log onto a merchant’s site whether you’re a Venmo user or a PayPal user and we will dynamically render that “pay” button to who you are.