Payment Methods

PayPal’s First Data Deal, eBay’s ‘Identity Crisis’

The eBay and PayPal quarterly earnings — even as two separate companies — are starting to sound like a (half) broken record.

PayPal is up, and eBay is down. That’s the reality everyone learned (again) after the two companies reported yesterday (Jan. 27) — seven months post-split. What the big day of earnings showed is that PayPal continues to thrive in its single, independent life, while eBay seems to be having a little bit of an identity crisis.

At least, according to one analyst, who, after seeing that eBay’s marketplace stalled again, was quoted as saying: “EBay has kind of lost its identity. Their pricing isn’t special. Their service isn’t special. They’ve lost their competitiveness.” Those were the words of Steven Weinstein, an analyst at ITG Inc., as quoted by Bloomberg.

The results of the two-sided earnings evening of the former duo landed them across the spectrum in after-hours trading. EBay was down nearly 10 percent, while PayPal was up more than 6 percent.

But the big news that came out of PayPal was an announcement that got very little play in the earnings call and one sentence in a press release: the formal agreement with First Data.

“PayPal signed a strategic agreement with First Data to enable the acceptance of PayPal’s tokenized payments in-store for First Data’s acquiring clients and businesses,” CEO Dan Schulman revealed during the earnings call with analysts. “This is an important step forward in driving availability of PayPal at the point of sale as First Data is the largest U.S. merchant processor, with approximately 40 percent market share … We believe the shift toward tokenization is an opportunity that will significantly help our business — enabling PayPal to expand and grow our ubiquity.”

For PayPal, the story was even sunnier when you started digging into the results. Schulman said its customer acquisition and engagement numbers for the quarter were “record-breaking,” as PayPal grew its active account base by 6.6 million accounts (which includes the 1.6 million accounts that came from acquiring Xoom for $890 million). He noted that 2015 rounded out with 179 million active customer accounts.

PayPal’s Q4 payment volume also grew 23 percent to $81.52 billion, up from last year’s Q4 figures of $66.04 billion (up 29 percent on a FX-neutral YOY growth, which PayPal noted was faster than the growth rate of eCommerce).

In 2015’s final three months, PayPal processed 1.4 billion transactions (up from 1.2 million from Q3), which amounted to 27 transactions per active account. This was up from last year’s 25 transactions/account figure. On its merchant services side, total payment volume accelerated to 36 percent, accounting for 81 percent of overall total payment volume for the quarter.

On the mobile side, PayPal processed $20 billion in mobile payments volume, which was up 45 percent on the year. Mobile accounted for 25 percent of total payment volume in Q4.

Following discussion from last fall, PayPal’s earnings call also revealed more details about opening up Venmo, PayPal’s P2P payments app, to businesses for in-app payments. This includes merchants for the pilot of this plan (dubbed Pay with Venmo), which includes the food delivery service Munchery and the mobile ticket vendor Gametime. Schulman noted during the call with analysts that Venmo’s users will soon see more benefits added to the P2P service, which could include a “host of other basic financial services.”

As for financial impact on the company, he noted that he doesn’t expect to see “meaningful revenue” come from Venmo until 2017 or 2018. Venmo processed $2.5 billion in payment volume in Q4, which was a 174 percent YOY increase. Venmo processed $7.5 billion in payments in 2015, which was up 213 percent from the year prior.

Schulman spoke briefly during the call about the decision to allow consumers to use Venmo to pay merchants. He indicated that one big push for doing so is to connect with the app’s young, millennial user base. From the merchant perspective, there is a benefit since they can see how their users use Venmo to pay and send money (because of the social feed aspect of the app).

For merchants who allow Venmo payments, they will be charged a fee of 2.9 percent of the transaction cost (plus a $0.30 charge per transaction). Users don’t pay any extra for using the service.

Those merchants will be charged a small fee for each transaction.

Beyond the newer announcements in the call, PayPal’s vision for where the payments market is moving seems to be on point, which means moving back to its core focus of online and mobile payments. One Touch was also mentioned as a high point for PayPal, as Schulman relayed that, in just six months’ time, more than 15 million customers have opted to use the option (and millions are processed each month).

As Schulman pointed out during the call: “We are not standing still … We are going where the trends are going.” And where aren’t those trends going? NFC, he said, specifically stating that he doesn’t think “that is a winning strategy.” He points to the common argument that there isn’t much of a value proposition in tapping a phone (as opposed to swiping or dipping a card). What PayPal is after, he said, is “using the power of mobile to get merchants closer to their customers.”

That same philosophy applies to how it plans to grow the company’s vision (and appease investors).

“As money becomes digital and the world goes mobile, we see tremendous opportunity ahead to expand our leadership, transform the way people move and manage their money and deliver increased value to shareholders,” Schulman said.

On the consumer and merchant side, PayPal is also focused on providing value-added services.

“We are working hard to expand the value of our technology platform for consumers and merchants around the world. For consumers, we are focused on using our technology platform to facilitate the movement and management of money. That means more than simply enabling commerce. It means we are reimagining what basic financial transactions can be in a world dominated by mobile and software. We want to leverage our globally trusted brand into fine digital money,” he later said during the call.

Overall, for the quarter, PayPal posted a revenue of $2.6 billion and growth of 17 percent. Revenue growth was 21 percent on an FX-neutral basis. Full 2015 revenue was up 15 percent to $9.2 billion (19 percent on an FX-neutral, non-GAAP basis). Net income for the quarter was $367 million, up 28 percent from 2014’s Q4 of $286 million.


eBay’s Marketplace Stall — And What Lies Ahead

EBay’s fourth quarter results show that the company is moving along in the post-PayPal split era, but there are still some major hurdles to clear. Like its marketplace segment, the major component that is dragging its earnings down each quarter and one that eBay is trying to wrap new strategies around each quarter.

The early guidance given Wednesday afternoon (Jan. 27) sent eBay’s stock down nearly 10 percent in after-hours trading.

What eBay’s Q4 results show is: GMV of $21.9 billion, up 5 percent YOY on an FX-neutral basis; revenue of $2.3 billion, up 5 percent YOY on an FX-neutral basis; and a 5 percent active buyer increase to 162 million (grew by 8 million). Non-GAAP net income was down on the quarter compared to last year. 2015’s Q4 income was $600 million, versus 2014’s Q4 of $685 million (an $85 million dip). Revenue for the year was $8.6 billion, up 5 percent.

GAAP income was $523 million, down from 2014’s Q4 income of $729 million. Marketplace revenue was $20.7 billion of GMV, resulting in $1.9 billion in Q4 revenue. Marketplace revenue was down 5 percent in the fourth quarter when compared with the year prior. Marketplace saw 265 million transactions in 190 markets during the holiday season. StubHub had strong growth, with GMV of $1.2 billion and $232 million in revenue (up 34 percent).

“We delivered solid fourth quarter results and continued to make progress against our key priorities,” Devin Wenig, president and CEO of eBay, wrote in the company’s earnings release. “The quarter also marked the end of an extraordinary year during which we completed the spinoff of PayPal. We continue to grow our business and customer base, while executing our plan to reposition eBay for long-term success.”

Looking to the segment gaining the most attention when it comes to eBay — Marketplace — Wenig had plenty to say about its long-term plans for the segment and how eBay plans to give it a boost. He cited the traffic and new customer acquisition as an issue, which he has for the past few quarters.

“We continue to see an impact on traffic and new user acquisition, along with continued near-term pressure from some of our strategic longer-term initiatives, which curtailed growth in the quarter. Six months ago, we began a series of platform, inventory and policy changes, which we believe are critical to make our business more competitive over the long term. While we’re making steady progress on these strategic initiatives, we don’t expect to see material benefit from them for some time to come,” Wenig said.

That “some time to come” may be what’s worrying investors. Wenig also pointed to the “ongoing challenges of SEO, the impact of the new mobile experience launched in Q3 and continued pressure on our C2C business.” But those have been the same problems eBay has been sharing quarter after quarter. And without PayPal propping up earnings, eBay’s growing pains are showing a bit more.

EBay has been making attempts to draw in new customers, as well as sellers to its marketplace, by experimenting with different ways to list products. This has been in an effort to bulk up its sellers on the site and number of products on its site inventory, as companies like Amazon continue to dominate in the eCommerce marketplace ecosystem.

“Transaction revenue was impacted by volume, in addition to seller and category mix, which showed an overall lower take rate. We also modestly increased contra revenue spend on coupons and seller incentives, shifting marketing spend away from operating expense,” Wenig explained in the call with analysts.

For now, eBay is focusing on ways to “sharpen its focus,” aggregating products better and making it “easier to discover the things that are unique and it’s easier to buy things.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.