Yesterday (March 4), PayPal President and CEO Dan Schulman gave his first public speaking engagement since becoming CEO at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco.
One thing made clear from his speech: PayPal, positioned as one of the key leaders in digital payments today, is taking full advantage of a system “ripe for disruption.” It is determined now more than ever to both work alongside innovative competitors – and also come out on top.
Schulman began his speech by reflecting on his journey in wireless and financial services that has prepped him to take the reign at PayPal. Previously, he went from founding CEO of Virgin Mobile to American Express, where he was brought in at a time when financial services was beginning the process of digitization. There, he said, he got to know PayPal quite well.
"I knew that PayPal had the No. 1 most trusted brand in digital wallets across the world, and stands for trust and security – two of the most important attributes if you’re in the financial services industry, serving both consumers and merchants."
Upon joining PayPal, Schulman understood PayPal’s massive scale – there are currently over 160 million consumers, over 7 million merchants. One out of every three adults in the U.S. is an active PayPal user. Four billion transactions were made through PayPal last year, and 1 billion of which were mobile – growing at 68 percent.
But what especially attracted Schulman to PayPal, he said, was far beyond its growth rate, its massive scale, or its business model – or what it’s doing right now. Rather, it was the company’s tremendous potential to move forward in an age of digitization.
"Money is a personal thing, for all of us in this room and throughout the world. Money is what fuels our dreams and ambitions, what entrepreneurs need to start new businesses, and what parents need to send their kids to college to get an education,” said Schulman. “With the digitization of money, I believe that PayPal has the potential to make a profound impact."
WHAT WILL COME FROM THE DIGITIZATION OF MONEY
"Someone once said software is beginning to eat the world, and the financial services industry is going through this change right now,” said Schulman. “I believe that in the next 3-5 years, we’ll see more change in the industry than we’ve seen in the last 20-30 years."
Forty percent of money passing through consumers’ wallets today is in the form of cash or checks. By the end of 2017, however, that percentage is predicted to decrease by 50 percent. Mobile, said Schulman, is what is primarily driving this change – and PayPal is at the forefront of it. He noted that PayPal did 1 billion mobile transactions last year, totaling $46 billion, off its various platforms.
But the emerging world of financial services will demand much more – that includes new skill sets like data and risk analytics. Security, he said, will be one of the biggest concerns on the minds of consumers and new-age financial services companies. Software is prone to being attacked by the bad guys, and the average American business today is attacked over 7 million times a year by malware.
In addition, things are changing quickly around the world, so regulatory know-how and having relationships with global regulators is another crucial element in a digital world, added Schulman.
"As the world shrinks, new ways of thinking about managing and moving money in innovative, easy and inexpensive ways are coming to the forefront,” he said. “PayPal is perfectly poised to be a leader in this emerging paradigm."
While e-commerce is PayPal’s current “sweet spot,” the digitization of money is opening up an even larger addressable market for the company to play in. E-commerce is still in its early stages, said Schulman, making up 10 percent of the overall market. But that’s growing quickly – some even believe it will rise to 20 percent in the next few years.
"In that market, PayPal processes one out of every $6 online. And as offline and online blur with mobile, we believe the offline marketplace is also a ripe opportunity for PayPal to penetrate,” he said. He added that PayPal’s platforms are technology and payment agnostic – and agnostic to the payment type coming in.
THE SECULAR SHIFT IN THE CONSUMER MARKETPLACE
As money becomes increasingly mobile, there’s a huge secular shift in the consumer marketplace, said Schulman. Consumers will have all the power of a bank branch at their fingertips as most of the 5 billion cell phones turn to smartphones in the next 5-10 years. So thinking about new ways of managing and moving money in innovative ways for consumers is key – and all of that plays into the brand and platform capabilities that PayPal has.
“We think that the world is moving toward what we do best – we have an enormous runway and opportunity in front of us,” said Schulman.
At that point, Schulman pointed out a few key metrics, indicating that PayPal is amongst the leaders in digital payments. But the important thing to note, he said, is what drives these results, making PayPal’s assets difficult to replicate and well positioned for the future.
"Do not underestimate the impact of having a brand that consumers trust or rely on,” he said. And for a financial services platform to truly be successful, he added, it has to “miraculously be a two-sided network."
"You have to go to merchants and consumers at scale – if there are a lot of merchants but few consumers, nobody wants to use the platform, and vice versa. A global, two-sided platform is crucial and very difficult to replicate in financial services."
With 162 million active consumers and over 7 million active merchants around the world, PayPal is growing that two-sided platform – and 50 percent of its revenue is coming from outside of North America.
Digital payments is the main focus at PayPal – it’s not just a sideline element. There are 16,000 people focused on digital payments at the company, and thousands of engineers that work to improve the product and technology platform. As a result of that focus, said Schulman, “in every market PayPal competes in, we are taking share."
THE PAYPAL VISION
The opportunities outside of PayPal’s sweet spot – primarily in mobile, and the shift toward using a mobile phone at the center of financial life – are playing into PayPal’s strengths.
The PayPal vision is to be the “world leading open digital payments platform,” said Schulman. The goal is to enable consumers and merchants to come together in the emerging world of digital commerce, alloying the ecosystem to build on top of existing platform capabilities.
“For merchants, our internal mantra is to be the operating system for digital commerce. For consumers, we want to democratize the movement and management of money.”
"Our vision is to move from being just a transactional relationship with the consumer to having a fully engaged model with them – working day in and day out to move and manage their money,” said Schulman. “We want to use our platform capabilities to deliver new services that make their lives simpler, easier and more affordable."
Overall, commerce will fundamentally change with the advent of mobile. Every merchant PayPal talks to is thinking about how mobile, and the blurring of offline and online, will change commerce and the checkout experience, said Schulman.
"We believe we are the neutral third party that helps merchants enable and take advantage of digital commerce,” he said. He added that PayPal wants to move from being a payments provider to a full solution payments partner for merchants. It wants to provide 100 percent of share of checkout to merchants, and allow them to accept any form of payment they want.
That 100 percent share, he said, will let PayPal “be much more than just a button on a merchant’s site.”
While the company has already seen remarkable growth, there’s a lot to execute over the next several years, said Schulman. PayPal needs to be disciplined in the way it invests and areas it goes after, which won’t happen overnight. It needs to take share in those markets. It needs to pay attention to capable competitors looking to enter the business – competitors that make up a “fascinating chess board."
Schulman concluded by saying that he liked how PayPal was positioned for three main reasons – one, it’s already in one of the fastest-growing markets. Second, it’s a clear leader in digital payments and has sets of assets and capabilities that are very difficult to replicate. It understands how to use capital in constructive ways, and it’s extremely focused.