“Do you see PayPal as a tech company, or as a financial services company?”
Dan Schulman still vividly remembers the first question he was asked on his first day on the job as PayPal’s CEO in 2014. Shortly after being introduced to the assembled employee base at a companywide presentation by then eBay CEO John Donahoe, an audience member stood up and asked Schulman to define his vision for PayPal.
In a recent Masterclass discussion with Karen Webster, Schulman recalled that he knew why he was being asked. He had come to PayPal from American Express, which made plenty of the PayPal employees at the time a little nervous about what his vision for PayPal might be. And, he said, he knew in the answer he was supposed to reassure employees about his allegiance to PayPal’s technology firm roots.
He just decided not to give that answer at the time.
“What I said at the time was that I hope two to three years from now we are going to be defining ourselves as a company that is, a first and foremost, a customer champion,” he said.
It was not, however, the answer employees had hoped to hear — and that was one of many moments early in Schulman’s tenure that he admitted had critics questioning if he really “got” PayPal. That uncertainty surfaced again two years later — a year after the firm’s initial public offering (IPO) — when he decided the firm’s future was about collaborating with the card networks instead of competing with them. At issue, then was the concern that collaborating with the card networks would fundamentally break PayPal’s business model and jeopardize its growth.
“I remember the headlines forecasting the death of PayPal, I think our stock dropped 9 or 10 percent at the time,” Schulman told Webster, noting that while it certainly inflicted some short-term pain at the time, the gains have long since far outweighed it.
As soon as PayPal opened up to the card networks and declared consumer choice as its core value in offering payment services via its digital wallet, he said, the firm saw its active user counts and engagement skyrocket.
In 2014, when Shulman took the helm at PayPal, there were 100 million active users. At the end of 2016, a year after PayPal went public, there were 179 million active users who used PayPal 17 times a year; PayPal’s market cap was roughly $47 billion. Today, PayPal has 300 million active users who use it 42 times a year and a market cap of roughly $125 billion. PayPal, Schulman observed, is also one of the largest suppliers of working capital to small businesses in the U.S. supplying over $1 billion per quarter to small- and medium-sized businesses (SMBs) nationwide.
So far, so good, one might say.
But not Schulman, who, while pleased with how things have gone so far, is much more interested in what comes next — because he’s quite sure of one thing: we haven’t seen anything yet.
“If you look at the last 20 years [at payments and PayPal] it has been more of what was extrapolated from the past,” Schulman observed. “I think there could be more changes in the next five years than there were in the last 30 or 40 years.”
The Lessons of the Recent Past
In trying to visualize the future of payments, Schulman said, the question one should really be asking is what will add the most value for users, not the coolest application of the latest technology. The former, he noted, hasn’t always been exactly the guiding light for predictions on payments’ future in the last several years.
NFC-based mobile wallets, he said, are the best and most recent example. In 2015, they were widely forecast to be within moments of disrupting plastic cards out of existence; as of 2019, it is quite clear that this was something of an overestimation as the vast majority of consumers in the U.S. and Europe are using cards to make their payments. The change in form factor at the same old point of sale, he said, wasn’t a value-add for consumers, since paying with a card wasn’t really a problem for anyone.
Compare that to a situation like China, he said, where mobile payments became part of so-called super apps like WeChat — and consumers got a massive value-add when it came to the ability to actively participate in eCommerce in its early evolving days. Cards weren’t the competitor in China, he said — cash was, and the digital wallets offered the consumer an entirely new way to transact.
“China was an environment that in many ways was ripe for this kind of change,” Schulman explained. “But because the pace of the market has been slower here in the States, I think it has now made it easy to underestimate how very fast-paced the coming changes of the next few years are going to look in terms of connecting payments to commerce experiences, loyalty and a whole host of other things.”
And while there is no definite roadmap through those changes and innovations, as many of these ideas are still works in progress today, Schulman said, PayPal has a playbook for navigating through what will likely soon be some very swiftly moving waters.
Why Doing the Right Thing Is Also Doing the Smart Thing
Capitalism, Schulman told Webster, is a fundamentally sound system and the best way mankind has thus far engineered to elevate people based on their talents rather than their birth. That, he noted, is a very good thing. But capitalism is a system that, like all systems, can be upgraded, improved and made more efficient and ethical with the introduction of technology that can help make the winner's circle bigger and more inclusive.
For PayPal, he said, that means the firm’s choices are guided by a single value — the democratization of financial services so that any citizen can have an account and access to a line of credit if they need it, and SMBs can get access to the capital they need to first stay open, and eventually expand, hire more people and even innovate on what they are doing. That doesn’t mean just handing out credit to everyone in the name of accessibility, Schulman said. What it does mean is going into banking deserts where entrepreneurs can’t seek out banking, financing or financial management tools from a bank because every bank within a 20 square-mile radius closed. It means underwriting consumers whose actual risk profile is poorly captured by the FICO system with a better proprietary algorithm.
In the short term, having values has costs — a lesson Schulman learned when he saw his stock price drop five years ago after he announced PayPal would be collaborating with the card networks to enshrine consumer costs better. But he believes in the medium and long term, doing the right thing isn’t only a good thing to do, it lays the foundation for how to do well in the longer term.
“At the end of the day, it is bad business to tell people — your customers, your partners, your employees — that you don’t value them or care about them,” Schulman said. “To me, our values as a company gives us a huge competitive advantage because we attract good, smart, motivated people to work for us and work with us.”
Today, he said, PayPal is a good company working in what it believes is a good ecosystem — and adding a lot of value to the lives of consumers in the form of access and options when it comes to financial services. That is exciting, he said, and remarkable considering where this whole ecosystem started in the late 1990s and early 2000s. But the more staggering thing to consider, he said, is how much more progress can be made going forward with the lines laid — and new technologies emerging. There are about 2 billion smartphones on earth today, he noted. It won’t be long before they are truly ubiquitous and in everyone’s hands — and the entire world will be literally a word away.
That world, he said, will be able to support great innovation, as opposed to merely good.
“Honestly, I think when it comes to progress, we have only barely even seen the tip of the iceberg so far,” he said.