Most of the time, saying that some firm or other was a “totally different company five years ago” is a bit of hyperbole.
However, in the case of PayPal, it really is the most accurate description — five years ago, PayPal had different leadership and different end goals and was still the payments branch of eBay.
And, of course, its relationship with the card networks and issuers was…complicated at best, Dan Schulman told Karen Webster during their fireside chat at Innovation Project 2017.
“There were years of mistrust that had to be overcome between us, the networks, financial institutions and issuers. What we’d had before them was more a ‘frenemies’ sort of relationship, with the emphasis more on one syllable or the other depending on the specific relationship.”
There was also, incidentally, some mistrust on the part of PayPal’s investors when it came time for PayPal to start cooperating, instead of very actively competing, with the card networks and issuers. Those concerns, however, seem to have been put to bed by PayPal’s last earnings report.
Clearly, the opportunity of consumer choice has led to more volume, and perhaps even volume that is tied to more margin-favorable debit (and not credit) products.
Even analysts agree.
“The deals with the credit card networks appear to provide less pressure than expected on the non-existence of the feared profit erosion,” noted James Cakmak, analyst at Monness, Crespi, Hardt & Co. “You’re seeing a skilled execution on the mission.”
And it is a mission, Schulman told Webster, that PayPal is committed to carry forward.
Because it has to.
As the financial and commerce ecosystems are increasingly involving online, all the players in the conversation have increasingly come to one conclusion: Customer and merchant optionality benefits ever player.
Moreover, the only way to win the war on cash and lead the movement toward digitizing more transactions is for networks, financial institutions and technologists to play nicely together and leverage their collective assets against the problems.
An Agnostic Platform
Much of what has changed the factious relationship to one based on a more cooperative model, Schulman noted, is that for financial institutions, PayPal is starting to look much more like their largest digital distribution channel than a director competitor.
“We can drive a lot of volume to them — and I think what is happening right now with innovations like mobile One Touch driving $100 billion mobile transactions outside of eBay growing 55 percent year over year, we have offered a very attractive proposition.”
Moreover, Schulman noted, One Touch has so far made a lot of headway against the sort of blessing/curse nature of mobile for merchants. On the one hand, customers have an always-on, always-open conduit to commerce.
With One Touch, Schulman noted, there is an 87 percent conversion rate — which means a lot of business is driven to merchants — and by extension, a lot of volume is delivered to issuers.
“I think that partnership that we unleashed allows us to work in an agnostic way with issuers, networks, tech companies, power. We’ve seen that more people who might have once thought of us as a competitor look at us as a platform they can build their payments ambitions around.”
And build those ambitions properly — which, according to Schulman, means a new focus from all digital commerce players about really enabling a value proposition shift.
Lack of understanding about that value proposition shift, Schulman noted, explains a lot of the morass that has held back “mobile payments” so far. Mobile payments, in this case, refers to in-store mobile payments at point of sale, which by the latest edition of the PYMNTS/InfoScout numbers has been pretty slow. Over 90 percent of consumers’ base response to mobile as offered so far?
And that, noted Schulman, isn’t really that surprising, since the early and heavily-hyped days of talking about mobile payments were really a discussion of a form factor change: swapping out a card for phone.
“Tap to pay was one of the most overhyped things I’ve ever seen. I’ve got a credit card in my pocket right now. It is not exactly weighing me down. It is fine; it works well. If it is just a form factor change, it is going to be a long time before any of these wallets come to fruition.”
What will move the ball — and is already doing so, Schulman noted — is mobile’s ability to blend all commerce channels into a single channel that consumers can access seamlessly.
“Think about Uber or ordering food ahead — the payment happens in the cloud for a real-world good. Commerce is just becoming commerce right now. These omnichannel or multi-context transactions are becoming more prevalent. That is the real value of mobile commerce or mobile payments.”
That shift of the value for all the players means the customer gets a better experience, the merchants get more traffic and more data, and the payments players see more digitized transactions.
But for mobile to work — to really add those values — it has to be fairly open, standardized and agnostic.
“I don’t think it can be bespoke one-off customization at the point of sale. It’s too expensive, too high a beta — this has to be somewhat agnostic. That is why our goal is to give an unbranded platform to write their applications and take advantage of mobile in the way it should be — not as a form factor switch but a value proposition change. When we get there and get retailers focused on that, I think you will start to see mobile payments as the final elements of enabling those value shifts.”
Moreover, Schulman noted during the last segment of his conversation with Webster, the goal of the ecosystem has to be to cast a wider net in delivering value more broadly.
“It is very expensive to be poor,” Schulman told the room, before noting that unless one has ever really been outside the financial services mainstream, it can be hard to know just how expensive poverty is.
“For at least 70 million adults in the U.S. and at least 2 billion people around the world, the basic transactions we take for granted are not just expensive — though they are that, like 10 percent of disposable income on fees and interest rates. If you’ve ever tried to spend a day without a credit card or checking account and tried to pay your bills and spend money, it is also so time-consuming — it is very difficult to do very basic transactions like paying your bills.”
And Schulman had one word for that situation happening in 2017: “ridiculous.”
The reality, Schulman noted, is that combining the power of software at scale and the fact that most consumers have all the power of a bank branch in their hands in the form of their smartphone means that right now, today, there is already the power to take friction out of the system and make it cheaper and more secure.
“We should be able to do more than just bring people into the system — we can also use it to basically drive financial health,” Schulman noted. “How do you incentivize savings, how do you offer credit to people who don’t have a file but you have data and information on them so they don’t have to go to payday lenders or a pawn shop? I firmly believe that technology has the ability to democratize financial services and that managing and moving money is a right and not a privilege for the affluent.”
That is not going to be easy — and PayPal can’t do it alone — but Schulman noted that in partnership with other players and with a will to really offer something better, a lot of positive stuff can be done. Referring to PayPal’s recent acquisition of TIO, he noted that creating an outlet that makes bill pay a digital function — as opposed to an all-day activity focused around check cashing, money orders and taxi rides — big improvements can be made in people’s lives.
PayPal is working in-house to build a lot of these, Schulman noted, but a lot of innovators are out there right now building those improvements all on their own.
“We will use our balance sheet to look around and purchase talent or capability that would take a long time to develop internally. There are a ton of great ideas, a lot of them around these underserved populations.”
It will be a long climb and will require a lot of outreach, trust building and tailoring for those underserved communities.
But PayPal is clearly not afraid of a long climb or a hard job, since the complete corporate makeover they’ve pulled off in a few short years wasn’t easy work either.
Because at the end of the day, Schulman noted, the world is changing, and the responsibility of financial services players across the board is to change with it. Once, he noted, a lot of corporate America was about “Madison Avenue” and the “promise of what you will do.”
That promise is still important — but more important these days is the day-in-day-out experience for consumers — not what you will do, but what you actually do right now.