PayPal's CEO Dan Schulman made it pretty clear during his company's analyst day yesterday (May 18) that his vision for PayPal is about much more than being a digital payments platform and much, much more than just a “checkout” button on a website.
The “new PayPal,” he emphasized, is all about opening up its ecosystem and finding the right partners to help collectively move commerce onto a totally different playing field. It’s about taking the PayPal network — or what Schulman called PayPal’s “secret sauce” — and enabling those services across the one concept that’s driving it all.
Across any channel that a consumer wants to transact.
It’s Blurry Between Those (On and Off) Lines
"We are focused on what consumers and merchants need. We are focused on where the world is going. We think this is going to be a mobile-first world and we are going to move into that world," Schulman said during the four-hour session in which PayPal unpacked its value proposition, provide some new insights into where its business is headed, the role of partnerships, and its plan to empower the next generation of commerce.
Schulman said what's unique about PayPal, is also what some people find most puzzling about it: it’s hard to put PayPal in a category.
And that's something that Schulman, frankly, takes as a compliment. PayPal is a technology company, but it’s also a financial services company. It has characteristics of an issuer, a network and a payment services provider all rolled into one. It’s a provider of services to small businesses, including credit. And then it's a digital wallet — the largest branded digital wallet in the world outside of China, Schulman noted.
"We don’t do just basic payments anymore,” he said.
And even Schulman knows that this 18-year-old company must morph into what it wants to become fast, because that's the way the ecosystem is evolving, thanks to the influence of mobile.
"The very face of money is changing. I think we are going to see more change in the financial services industry in the next 3-5 years than we have seen in the last 30. It’s going to be that drastic," Schulman told the crowd of analysts. "Mobile is changing the face of commerce. I would argue that mobile is taking away the distinctions of what were previously separate categories ... it's blurring the distinction between online and offline."
Tapping What Remains Untapped
Despite how much has changed, not only just for PayPal, but for the entire digital payments ecosystem, Schulman admitted there's still an entirely untapped market ready to innovate. For PayPal, they are "just scratching at the surface of opportunity in front of us," Schulman said.
"The addressable market in front of us is huge," he added.
While everyone is so focused on how mobile and digital are changing the face of money today, Schulman pointed to one glaring fact that's holding the industry back — the fact that 85 percent of commerce is conducted in cash. But mobile, particularly in regions that were once dominated by cash simply for lack of other financial service options, is changing the game.
"Commerce is just commerce," Schulman explained, speaking toward how mobile is making its impact on enabling how consumers and merchants interact with each other. "It's not just offline or online. The advent of mobile phones and software is going to accelerate that transition. Offline and online are coming together."
That makes up the "addressable market" Schulman referenced; a market, he suggests is a $100 trillion market that PayPal is working to attack.
"We're about a $10 billion business going after a $100 trillion market. It order to do that, we need to change our value proposition," he said.
To do that, Schulman said PayPal will be focused on the "flywheel effect," a concept that was referenced many times during the presentations. What that concept refers to is how its investment in consumers become investments in its merchants, which end up strengthening both sides of its two-sided network.
"The bigger we get in terms of customer base, the stronger the flywheel effect will be. The more important we are to merchants, the more important we are to consumers. The more services we offer, the more likely we are to stay," Schulman said.
PayPal's Growing Ecosystem
That's a customer base of 184 million customers and 14 million merchant accounts, and as both sides of the equation grow, PayPal has the opportunity to offer its consumer base and merchant base better value propositions. As more customers join the platform, merchants are more likely to want to add PayPal as a checkout option, and as more merchants join the platform, it's more likely that consumers will be more opt to use the platform — and use it more frequently.
Which will be increasingly easier to do as PayPal expands its presence from online to mobile to in-store to social and other new contexts for consumers to engage with.
And that's why, regardless of the services PayPal adds, Schulman said it's all about one concept: getting customers to use PayPal more often and at more merchants.
"What we want to do is turn a PayPal customer using it two times a month to two times a week," Schulman said. "My own ambition ... is that PayPal customers use PayPal every day."
That is at the core of PayPal’s ambition to partner, a significant departure from PayPal's old business model which was based on decisions focused on simply growing PayPal itself. Now, however, expanding its platform into more ecosystems and more partners helps enrich its value proposition back to its core base: consumers and merchants.
"If we can put customer choice firmly in our business model ... it opens up opportunities to work within financial ecosystem. We can be great partners together," Schulman added.
"We have full services platform that we are looking at on unbranded basis that we are looking to power. Why you are seeing so many partners begin to partner with PayPal is because we are helping them advance their strategic initiatives," he added. "What we can do is use the 170 million+ consumer accounts we have to basically authenticate digital wallet holder into the merchant’s sites."
And that's a value add more and more merchants are seeing today. Where PayPal comes back into the mix is enabling merchants to integrate those solutions without needing form-factor changes.
PayPal's Focus On The Merchant
Bill Ready, PayPal’s SVP of Global Product and Engineering, spoke to PayPal’s focus on the merchant by enabling loyalty, in-store purchasing, and financing, etc. in order to deliver a complete commerce experience between the consumer and merchants.
As for in-store, PayPal's executive team emphasized that its focus on in-store innovation is one of its driving retail strategies, which includes expanding PayPal's footprint beyond the "buy button" into an in-store payment experience using its "smart wallet" capabilities. At the moment, PayPal's app enables consumers to pay in-store and order ahead at select merchants, but eventually PayPal plans to do more, including enabling NFC capabilities, along with bill pay and bill splitting.
Mobile, Ready notes, is a mixed bag of challenges and opportunities including converting consumers into buyers and not just browsers. PYMNTS' research on the merchants that drive 70 percent of retail spend online suggests that merchants lose 40 percent of their sales annually given the issues associated with checkout conversion.
"People are demanding a re-wiring of commerce experiences out there," Ready said. "The core digital wallet experience is going from a 'nice-to-have' to a 'must-have.' You need the digital wallet. You need the two-sided network.”
As for PayPal's value add for merchants? Ready said it's all about the tools and capabilities to help them enable their own value propositions, which means helping them connect with consumers — but via PayPal's branded experience. That experience, of course, is increasingly about enabling mobile commerce.
"And we're partnering with much of the ecosystem to do so," Ready noted during his remarks about PayPal's end-to-end open payments platform evolution.
Ready recognized that the "PayPal of the past," was closed, but the "New PayPal" that everyone's been talking about is about the "rewiring of commerce."
"We're not just iterating on our own, but we're iterating with partners, issuers, networks. We are enabling transactions that no one else could. We are helping them rewire how commerce is conducted all over the world," he said.
Democratizing The Buy (Button)
Ready and Schulman also spoke of the impact of PayPal OneTouch and its plans to expand its user base of 22 million customers who have activated the option. PayPal also has a goal of taking the q million merchants that offer the OneTouch checkout option today to 2 million by the end of 2016.
"We need to democratize the buy button experience," Ready said, which means making it easier for merchants to integrate the option into their own checkout experience in a way that meshes with their own brand's needs.
"A cool API is necessary, but not sufficient. It's about being secure and being able to enable buying experiences," he added. "It's also not just about a sexy API, it's what you get access to do with that API. You need a brokerage of trust," Ready said, noting that this is where "consumer and merchants meet in a new context."
And where and how those consumers interact is where PayPal's evolving value proposition comes back into the picture: providing payments solutions to enable commerce experiences. This means enabling those experiences in ways that isn't focused on comparing online versus in-app versus in-store.
After all, as Schulman said: "commerce is commerce."
And PayPal wants to power that commerce experience however, wherever and whenever consumers and merchants want it to happen.